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Bahrain – The Country of the Two Seas

Bahrain is a small Arab state on the southwestern coast of Persian Gulf.  Its name translates into “Two Seas”.

It has 30 islands and is considered an archipelago. It is located at one of the world’s top oil-producing regions. 

The Muslim country of Bahrain has a population of almost 1.6 million and a GDP valued at $38.57 billion in 2019.

According to the Ministry of Foreign Affairs, Bahrain’s government is constitutional hereditary monarchy.  “The system of governance is based on the separation of legislative, executive and judicial authorities and their cooperation under the provisions of this Constitution” (Mofa, 2020).

Economy

Bahrain has become one of the top 10 countries which advanced their business climate. It achieved a 76 score in Doing Business and gained the 43rd position globally. This is due to its nine business reforms that took place during 2019.

According to Isaam Abousleiman, the World Bank Regional Director for the Gulf Cooperation Council (GCC) “Bahrain is making great stride to improve the business climate for small and medium-size enterprises”. He then added: “These reforms will enhance the foundation for private sector-led growth.”

Bahrain’s GDP worth for 2020 is expected to be $2.57 billion lower than the $38.57 billion achieved in 2019.

However, the country’s 2021 GDP is predicted to be valued at $37 billion and increase in 2022 to $42 billion following an upward trend onwards.

According to Trade Economics forecasts, Bahrain’s Annual GDP Growth Rate will decline in 2020 and revive to 3% in 2021 and follow a downward trend in 2022 reaching 2.50%.

GDP Annual Growth Rate
Source: Trade Economics
Source: Trade Economics

Bahrain’s economy is highly dependent on processing crude oil from the countries around it along with the newly established sectors such as financial, commercial services, communication, and tourism.

Furthermore, according to Trade Economics, the Bahrain’s biggest GDP contributor is the Services sector with BHD 1815.41 million followed by the Mining sector with BHD 605.89 million and Manufacturing sector with BHD 492.42 million.

Bahrain GDP including Sectors

Employment

Bahrain’s unemployment rate has been increasing since 2017 from 3.7% to 3.9%.  By the end of the 2020, the country’s unemployment rate is expected to reach 4.30% and then decline to 4.10% in 2022 and onwards.

Taxes

According to PWC (2020), Bahrain does not apply taxes on income, sales, capital gains or estates.

However, a tax rate of 46% might be applied to both foreign and local businesses that perform activities within “the oil and gas sector and/or derive profits from the extraction or refinement of fossil fuels.”. The specific 46% is applied on the net profits for each tax year and it has no correlation with the taxpayer’s residence.

Early in 2019, the government of Bahrain imposed a 5% VAT rate on most goods and services apart from a range of certain products and services.

Employers have the obligation to contribute a 12% in social security for Bahraini workers and an obligation to contribute a 3% social security for non-Bahraini workers.

Additionally, there is a municipality tax of 10% on commercial and residential properties rented by expatriates.

Real Estate

The country of Bahrain created an online platform called Benayat, which is a Building Permit Portal allowing users to issue permits for all types of building projects. 

This portal enables applicants to find all the necessary information, regulations, and requirements in order to apply for a building permit. It also enables Bahrain Licensed Engineering Offices to review applications for construction permits.

It is an important change as now applicants can receive an answer sooner due to the redirection of the process from Government entities to Licensed Engineering firms. It was ranked 17th on the worldwide registering property indicator.

The real estate of Bahrain is expected to experience the effects of a declining economy and the lower activities in investment and development due to the Covid-19 pandemic.

The real estate market of Bahrain is expected to revive and stabilize once the country’s economy recovers from the effects of the Covid-19 pandemic. 

According to Property Trends, the establishment of RERA and the country’s new regulations helped to increase the investors’ understanding of Bahrain’s market and find the right investment opportunity.

Additionally, giving the figures provided by Property Trends 2019 Report, Bahrain’s rental properties both Apartments and Villas have seen a decline in 2019 comparing to 2018.

The only areas that have seen an increase in rent prices in 2019 are the Tubli and Um Al Hasam communities for renting apartments and Muharraqa and Sanad communities for renting villas.

Apartments for rent - Median Annual Rental Price
Source: Bahrain Real Estate Market Report 2019
Villas for Rent - Median Annual Rental Price
Source: Bahrain Real Estate Market Report 2019

Furthermore, Property Trend’s report states that the properties sales of the market has experienced a decrease in prices even though it has been generally more stable than the rent market in terms of prices.

Also, in 2019 there has been a drop in apartment sales price per square meter compared to 2018.

The only communities with an upward trend in sales prices per square meter from 2018 were the communities of Bahrain Bay and Dilmunia Island and Marassi Al Bahrain.

Apartments for Sale - Median Sales Price Per Sqm
Source: Bahrain Real Estate Market Report 2019

Furthermore, the villa sales prices declined in all of Bahrain’s areas with the most significant decline being in the Muharraq city from BHD 587 p. sq.m in 2018 to BHD 490 p. sq m.

Source: Bahrain Real Estate Market Report 2019

In addition, according to the Falak Studies, the key residential locations for expatriates to rent in Bahrain are: Reef Island, Amwaj Islands, Bahrain Bay, Al Riffa, Saar, Hamala, Juffair, Adliya, Mahooz and Hoora. These areas are characterized by affordability and luxury at a good location in the Kingdom.

The real estate market in Bahrain provides an array of properties from luxurious properties addressed to high end clients (HNWI) to medium-range properties attractive to buyers who could also be interested in competitive financing arrangements.

The Bahrain’s real estate market has become more organized and regulated due to the establishment of the Real Estate Regulatory Authority (RERA). 

The real estate prices now are lower than last year, but the projections indicate that once the country revive from the negative effects of the covid-19 pandemic, the flow of investments and the economic upturn will follow. This creates an opportunistic environment in which investments have the potential of high returns in the long run.

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