Social Housing Drive Contingent On Local Industry
As part of a wider effort to placate a very volatile and negative public sentiment, the government in Bahrain have earmarked BHD580mn (US$1.5bn) for the construction of new, low- cost housing units. We see this as being a wholly Bahrain-based operation, with local contractors picking up the contracts, funded wholly by public money, especially as the risk premiums in Bah rain are too high compared to other countries in the region.
|High Risk Premiums Will Continue To Keep Investors Out|
|BMI's Political Risk Ratings, Scores out of 100|
The government's plans include the construction of 16,000 housing units over 2013-2014. This is effectively a continuation, and it seems partially an overlap of the 2012 housing policy, when the government singed a US$550mn contract with local developer Naseej, to build 4,000 affordable housing units to 2014 (see our online service January 5 2012, 'Social Housing PPP Offers Encouragement For Wary Investors). The plan - according to government sources cited in local press- is going to be financed by BHD240mn (US$636mn) earmarked in the 2013 budget and BDH340mn (US$901mn) from the 'GCC Marshal Plan', a regionally-funded pool of money set up to support the spending sprees of governments facing domestic volatility and opposition.
Housing policy is key to Bahrain's wider social policy agenda, as the deficit has compounded, with applications and waiting times rising. Slow land reclamation and appropriation procedures appear to be at the heart of the problem. The public-private partnership procurement model implemented with Naseej could speed the entire process up, though the developer will likely be subject to these issues as well.
In terms of project-specific details, the government has earmarked the funds from the GCC Marshall Plan for the development of the East Hidd Town, which comprises of 4,500 units, 1,350 of which are low cost. The reports also note that two additional complexes will also be built in East Sitra and the Southern Governorate, each with 4,000 housing units.
|Held Back By Risk Aversion|
|Bahrain Construction Forecasts|
It is our view that elevated risk aversion will continue to undermine growth within Bahrain's construction sector and keep a lid on foreign investment. We expect gross fixed capital formation, and by extension the construction industry, to underperform the wider economy over the medium term as public spending constraints, inhibitive project financing conditions and a depressed tourism sector contribute to lacklustre growth. Having expanded by an estimated 3.9% in 2012, we are forecasting the construction sector to grow by a still relatively modest 4.0% in 2013 - well below the levels seen between 2001 and 2008.