Identifier
Created
Classification
Origin
08MANAMA673
2008-09-29 11:11:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Manama
Cable title:  

CONSTRUCTION SHORTAGES DRIVE REAL ESTATE MARKET

Tags:  ECON AMGT BA 
pdf how-to read a cable
VZCZCXRO3805
PP RUEHDE RUEHDIR
DE RUEHMK #0673/01 2731111
ZNR UUUUU ZZH
P 291111Z SEP 08
FM AMEMBASSY MANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 8158
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0299
RHBVAKS/COMUSNAVCENT PRIORITY
RHMFIUU/HQ USCENTCOM MACDILL AFB FL PRIORITY
UNCLAS SECTION 01 OF 02 MANAMA 000673 

SENSITIVE
SIPDIS

BAGHDAD FOR AMBASSADOR ERELI
STATE FOR OBO, NEA/EX

E.O. 12958: N/A
TAGS: ECON AMGT BA
SUBJECT: CONSTRUCTION SHORTAGES DRIVE REAL ESTATE MARKET
FASTER THAN OVERALL INFLATION

REF: A. MANAMA 521

B. MANAMA 565

C. 07 MANAMA 887

UNCLAS SECTION 01 OF 02 MANAMA 000673

SENSITIVE
SIPDIS

BAGHDAD FOR AMBASSADOR ERELI
STATE FOR OBO, NEA/EX

E.O. 12958: N/A
TAGS: ECON AMGT BA
SUBJECT: CONSTRUCTION SHORTAGES DRIVE REAL ESTATE MARKET
FASTER THAN OVERALL INFLATION

REF: A. MANAMA 521

B. MANAMA 565

C. 07 MANAMA 887


1. (SBU) Summary: Bahrain has faced a sharp increase in the
price of construction materials since 2005. Even as land
prices have stabilized, these cost increases have helped
drive a similarly sharp increase in real estate prices.
Although the purchase and lease rates for retail/office space
have begun to stabilize, residential prices continue to
rise--exceeding 20-25% per year in some areas. There are no
signs of a "bubble" and the market should eventually come to
a soft landing. End Summary.


2. (U) Bahraini building contractors have faced significant
cost increases since 2005 due to a combination of factors
including the construction boom throughout the GCC and
Bahrain's limited local resources. The construction booms in
the UAE, Qatar, Saudi Arabia, Kuwait, and Bahrain have
created immense upwards pressure on the prices of building
material inputs in the GCC, and have resulted in
project-delaying shortages of steel and cement in Bahrain. As
many construction inputs are imported from China, South Asia,
and the EU, the depreciating dollar--and Bahrain's hard peg
to the dollar--has exacerbated the price increases felt by
local developers.


3. (U) From 2005 to 2007 the prices of most building
materials in Bahrain increased by more than 30%, with prices
of some inputs, such as steel, increasing by more than 100%.
The production of concrete appears to be the sector most
heavily affected. Between 2005 and 2007, the average prices
of the raw inputs of concrete increased significantly:
aggregate increased by 160%, limestone increased by 50%, sand
increased by 300%, and cement increased by 81%--which then
increased an additional 60% in 2008 following Saudi
restrictions on cement exports (ref B). The market for steel
and rebar did not fare much better with prices rising by 108%
over the same period.


4. (U) A combination of the increase in construction costs
and the delays caused by material shortages have led to
significant increases in real estate prices, both retail and
residential. A survey of major real estate companies in
Bahrain reveals that while land prices generally stabilized
between 2007 and 2008 and are presently rising at

approximately the same rate as overall inflation (that is
between 5-10% annually),rental and purchase prices of real
estate have risen by approximately 30% a year for each of the
last two years, with residential growth rates generally
outpacing office/retail rates, as smaller residential
projects struggle to compete for scarce materials with large
commercial and government projects. Residential lease rates
in and around Manama rose by an average of 15-20% again in
the first half of 2008.


5. (U) Between 2005 and 2007 rental rates in large retail
centers--over 10,000 square meters--varied significantly.
Prices rose from $24-32 per square meter to $40-106 per
square meter--increases of 66% on the low end to 231% on the
high end. Despite the rate increases, Bahrain,s retail
malls report strong occupancy rates, with six of the eight
largest malls reporting 100% occupancy and no mall reporting
less than 94%. Smaller retail centers fared similarly,
reporting occupancy rates between 75-100% and lease rate
increases since 2005 averaging 25%. Real estate companies
report that the growth in retail rates slowed in 2008.


6. (U) Growth in residential purchase/lease rates over the
same period have been less varied than in the retail market,
but have been generally higher and have continued to increase
in 2008. In 2007 the average residential lease in the Saar
neighborhood increased by 25%, in Adliya by 20%, and in
Juffair by 10%. In the first half of 2008, lease rates
increased an additional 20% in Saar, 15% in Adliya, and 10%
in Juffair. Many of the real estate companies expect
residential lease rates to slow and stabilize by the second
quarter of 2009 as a number of large projects are completed
and real estate markets slow in general.


7. (SBU) Comment: Although there does not appear to be a real
estate bubble that may collapse rapidly, there are signs that
the commercial market, at least, is softening. One major
real estate company, Tameer (protect) reports that it is
seeing the first decrease in real estate volumes since 2001,

MANAMA 00000673 002 OF 002


and suspects that some markets, especially those susceptible
to rampant speculation such as freehold properties in hot
business areas, may see a decrease in prices over the next
two years. Local financial institutions have increased the
risk assigned to local mortgages and it appears that
investors are taking their cues from the financial
institutions and slowly withdrawing from the market,
relieving some of the upward pressure on prices. However, the
big rises of the past two years have put a real strain on the
Bahraini middle class, and on companies ) and Embassies )
that must provide housing for their expat staff.

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HENZEL