26/11/2015 08:21 AST
The removal of fuel and utility subsidies in Bahrain is likely to have a long-term impact on industrial and residential property markets, according to real estate consultancy Cluttons.
Cluttons Bahrain and Saudi Arabia head Harry Goodson-Wickes said the continuing slide in crude oil prices is driving the need for additional income streams for the kingdom, which relies on hydrocarbon income.
“With oil prices hovering at around $40 per barrel, the timing for a removal of the fuel subsides seems appropriate as it would most likely minimise the impact felt by households,” he said.
“And with the government estimating a 60 per cent to 70pc decline in oil revenues so far this year, there is a clear sense of urgency to diversify revenues.”
Assessing the impact on the residential market, Mr Goodson-Wickes said the removal of fuel and utility subsidies will increase household costs and threaten to reduce Bahrain’s competitiveness as a destination for expatriate workers.
“In the long term, this may lead to a decline in rental yields and capital values in the kingdom,” he added.
However, he expects the industrial sector to benefit from removal of fuel subsidies in the short term.
“Warehouse lease rates are already amongst the most attractive in the Gulf, ranging from BD2 per sqm to BD3.500 per sqm.
“And with the continued buoyancy in the retail sector, warehousing demand continues to rise,” he added.
According to him, any move by the government that reduces overhead costs for the industrial sector will boost manufacturing activity and the appeal of Bahrain amongst the region’s industrial occupiers.
“The advantage Bahrain offers is a strong platform, with established industrial estates and easy access into Saudi Arabia, putting it at an advantage over some other regional locations,” Mr Goodson-Wickes said.
“The level of adjustments made to utility subsidies will go a long way towards telling if the changes help Bahrain to remain as an attractive destination for expatriates to live and work in.”
Concurring with him, Cluttons head of research Faisal Durrani said UAE had led the withdrawal of subsidies and it was a matter of time before other Gulf states followed suit as they rebalanced their economies in the cheap oil era.
“After fuel subsidies were ended on August 1, the price of diesel in the UAE has fallen by 30-40pc, which has a clear upside for the industrial sector, with lower manufacturing and transport costs likely to be passed on to consumers,” he added.
“In the long run, cheaper production costs help with competitiveness and drive demand, which filters through in the form of stronger demand from industrial occupiers.”
Mr Durrani feels that Bahrain would benefit from cheaper diesel prices and remains an unchallenged logistics hub in the central Gulf.
“This could help give the sector a shot in the arm and put it on the road to being a key economic driver.
“This is something the government of Bahrain has being trying to unlock for some time.”
The government budget forecasts the deficit climbing to BD1.47 billion this year and BD1.563bn next year, from an originally planned BD914m last year.
Gulf Daily News
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