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Viewing cable 08MANAMA673, CONSTRUCTION SHORTAGES DRIVE REAL ESTATE MARKET

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Reference ID Created Released Classification Origin
08MANAMA673 2008-09-29 11:11 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Manama
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 
 
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. 
 
********************************************* ******** 
Visit Embassy Manama's Classified Website: 
http://www.state.sgov.gov/p/nea/manama/ 
********************************************* ******** 
HENZEL