Rent or Own a home in Bahrain?

Well for the first part, read this sticky.  I made this for the residency through property investment process but it has a lot of details on the purchase process and what to watch out for.  My advice?  completely stay away from off-plan - read the security clearance part and you will understand.  Then there is also the risk on the project delivery timelines and also arranging bank financing for off-plan projects.  So buy off-plan in either your home country or places where you would be protected.

https://www.expat.com/forum/viewtopic.php?id=844334

And you have opened a big topic (as usual ).  There are LOTS of things to consider on the purchase vs. rent and when you bring GCC into the mix, even more complexity is created.  I will attempt to segregate these.

Lifestyle
Generally, as a rule of thumb, unless you have no issues with money; the property that you can buy at any given point in time will ALWAYS be smaller or in a less affluent neighborhood vs. what you can rent.   So you need to be ready to make the compromise in your lifestyle to own a property.

The way it works is that you buy a smaller property, live in it, adjust, save the rental and then buy another property.  Then wait for prices to go up, sell both and get what you are generally used to living in.   So essentially, it is a trade up philosophy if you want to live according to what you are used to. 

GCC Complexity:  You might not be here long enough to follow the trade up philosophy especially if your income is dependent on a job and not your own business. Job security / continuity is not guaranteed anywhere.  A lot of people who have been in Bahrain for decades are either running their own businesses or have already worked here for so long that they can get retirement visas while living off pensions / savings.  And a huge majority, already have Bahraini passports especially the Pakistani's who came for police and security services, decades ago.  Now, all of that has changed.  With the localisation drive, expats cannot count on staying indefinitely through jobs or even businesses for that matter (this year, more business activities were made for Bahrainis only by MOIC).  And forget about the passport, there are thousands of people in the queue since decades and security services people are even not getting them anymore.

Financing
I am personally not too hot on mortgage loans and the time period these take.  I only ever use them to get someone else to check the property legal documents so that I am protected in less safe localities e.g. Pakistan / India.  Then, I pay off the loan in 3-4 years while squeezing every other expense and completely changing lifestyle to enable that.  Again, this is only possible if you don't overstretch on the lifestyle point as explained above.

In Bahrain, there is no risk for title deed properties as there is in the sub-continent so I would never go for a mortgage loan.  Instead, I would go for a personal loan e.g. get one for 20-25K, put in another 25K of own money, get the property and pay off loan in 3-4 years.  Again there is the lifestyle angle of being able to adjust in a smaller place to make this viable.

GCC Complexity:  You lose your job.  Your visa gets cancelled.  Your loan has to be paid.  If you can't pay, you get travel ban and are pretty much stuck.

Bahrain property market
You have a valid point on all those buildings coming up especially in expat dominated areas.  What you need to understand is who is buying.

For the most part, it is NOT locals buying in places like Juffair.  There used to be quite a lot of local buyers for investment opportunities but this has tapered off now with the economy the way it is and the rise in interest rates.

Right now, the following categories are buying in expat areas:

- Few locals, for investment purposes
- Long term residents who are trading up or for investments or to comply with the new rule for citizenship application which came out this year (property in your name)
- Saudis for investment and for weekend homes
- Saudi expats for self sponsorship visas, who want some continuity / security in case of job loss and / or want to keep their families here
- People from the sub-continent; primarily Pakistani's who are moving money abroad due to the economic / political situation and the 10 year visa for 50K BHD is a much better deal then UAE (10 year visa for 10 million AED. 2 year visa for 1 million. Proof of income of 1000 BD vs. 500 BD in Bahrain).  Even the property agents are surprised at the recent increase in the number of people from Pakistan

Almost all of this is focused on apartments.  The hottest selling are two bedroom apartments and primarily in Juffair / Seef.  Amwaj is not as popular due to the new developments coming out, right next door to it.   And if you consider the people and the reasons for purchase, it is easy to figure out why the villa market has completely tanked.  Villas, in Riffa views, which, some years ago were selling for 420K, right now, can't find buyers for even 280K!!!.

So in the end, demand and supply should balance out if the economy doesn't worsen.  Most likely is that demand will continue to remain a bit lower than supply.  Right now, it is a buyer's market.  You can get 2 beds in Juffair for around 60K - the same 3/4 years ago were selling for 80K.

If they relax the security clearance, then the demand / supply situation would completely reverse as there are literally thousands of Syrians / Iraqis / Yemenis etc who would love to buy but simply don't get the security clearance.

Overall context
As an expat, I would never advise buying property in the GCC from a long term angle i.e. 10 years plus. Purchase should be for the short term i.e. less than 10 years and for a specific reason e.g. visas and / or short term investment for returns.  And even then, the monetary value should not be a significant portion of your overall portfolio and AFTER you already own one property in your home country.

Because simply, you will always be an expat here and subject to removal if circumstances change - you could be a property owner but not allowed to live in the country e.g. if you have a legal judgement against you or a medical condition or a security issue.  And also, there is no permanent residency or naturalization towards Citizenship for most people.   

Lastly, even if you get a visa through the property, your kids are only eligible to stay on your sponsorship till the age of 18 so it is not a "fire and forget" solution if you are contemplating long term residence.  And imagine, if you die as a property owner, getting succession to your heirs would be a nightmare because if you were a visa holder, the visa is cancelled.  So they have a strict time frame to get succession and apply for a visa once they get the property in their name.  And if they don't live here anymore or the kids are above 18, coming in and doing that would be even more of a hassle.

So consider all angles before you jump the gun.  Or as I said, buy for short term for specific objectives and be mentally prepared to sell it should your situation change - at the same price you bought it or even a bit lower.

As an example, I bought a 2 bed fully furnished apartment last week in Juffair for 60K+.  All cash, no loan.  I will never live there or rather can't live there as I live in a 4 bedroom villa in Riffa Views.  I could have bought a villa similar to the one I live in, again in cash but it is not in line with my objectives and it is too much of a risk tying up money here.  My objectives are to get the visa in the short term and maybe use it as a vacation home in the long term if I move out of Bahrain.  I haven't even decided whether I want to rent it or not.  And if I ever move out of the GCC with no possibility of return e.g. go back to the home country or elsewhere for retirement, I will probably sell it.

XTang,

Before I thank you enough for this detailed information (as usual also), I need to stop laughing because I just cant seem to do that  ! Sorry to keep introducing really big topics. There is a reason I am Think Tankk with a double k      you see or maybe I am going through a midlife crisis where all of life decisions seem uninformed and so the research oriented approach.. Honestly, do you have any plans to open an advisory business for expats? Believe me you'll be able to own not one but many properties here..

Jokes apart, this is serious advice! Thank You as always. 
And Yes I happen to be among the absolutely chaotic case where I am a Pakistani Bahraini but my husband and kids are Pakistani nationals. I believe you know how it works with being a Bahraini woman with foreign family members - basically expat eventually! I sponsor the kids now but I don’t know if the 18 year rule applies here.
We even contemplated property back home but having lived all my life here and the horror stories one gets to hear there (you too mentioned about having someone else to check the legality of the property documentation etc). Besides, there is no plan to go back in any case and I believe owning a property back home warrants someone to keep a constant eye on it (if off plan) and someone to manage it if its ready property ie to get it on rent, repair maintenance and rent collection etc. I hope with Naya Pakistan on the horizon this will change by the time the kids contemplate buying property – doesn’t seem like it though…with the increase in purchase elsewhere!

Also, I am bit taken aback about the Riffa views scenario. I was of the mindset that the best investment ever is property investment. Apparently the value of property only appreciates, never depreciates so those who have bought properties in Riffa views are at a huge loss if they have to sell in the current scenario (let’s say for an emergency). What’s the point of having a secure investment in properties then?! If this rule of property appreciating in value is only applicable to long term scenario i.e. 20-25 years, that’s a different story.

The same case would apply for apartments as well whether in the hot cake areas like Juffair or Seef! The case of Abraaj al Lulu apartments going down terribly in times of unrest is a classic example.

And with this post, I have reached the conclusion that the best option is to go for a Personal Loan and add in some to savings to shift to a basic 2-3 bedroom apartment which is plenty in parts of Riffa, Sanad, somewhat far away from the city. But I am not sure if Bahrainis can get personal loans above 7-10k especially if you are not working for a ‘approved’ employer in the banking system. The tradeup idea makes perfect sense - go with a scaled down lifestyle to live a preferred lifestyle eventually.

Also, since you have recently bought property in Bahrain, what has your experience been in terms of negotiations? I mean, are sellers willing to give significant discounts on the rack rates of the properties, so if a 50K property is listed, what kind of discounts can one expect or ask for..

God, there is so much of conflicting views. I was told that never invest in an apartment unless you have no money issues because overtime apartments value goes down whereas land/villa prices increase! I think I read about it too. 

TT

Everyone goes through this midlife crisis .  Advisory business huh?  interesting thought ha ha.

On a separate note, the same rule will apply to your kids when they turn 18.  However, in  the Bahrain parliament, there are bills that are being introduced to address this by giving the kids nationality or allowing the mothers to sponsor them longer.  Because many people are in this situation and the argument is that why should Bahraini mothers have to set up companies to be able to keep their kids here.  So in the coming years, this may be addressed to your benefit.

And as I said in the savings and investments thread; the best investment is NOT necessarily a property investment e.g. if you want high returns on capital invested with relative liquidity and reaction time to the market etc.  It is an "acceptable risk" investment for stable returns and capital protection provided the market continues to remain stable.  It is a "good" investment if you want to live in it. 

What you have to understand is economics i.e. supply and demand.  Property prices will only continue to appreciate if there are more buyers than sellers in the coming years.  While this holds generally true for countries like Pakistan with high local population growth rates or countries with an overwhelming majority "local" population which is here long-term; this is more difficult for Bahrain where the local population base is relatively low (in ratio vs. most countries - compared to expats), in a completely different income / lifestyle distribution (vs. expats i.e. live in separate areas which is to say that most will not buy property to live in places like Juffair for example) and the affordability / value attached to property in expat areas i.e. locals see the price as too high vs. what they can get in primarily local areas and the price is also out of the reach for most Bahrainis.  This means that prices, especially in expat areas, are determined primarily by expat buyers.  And with the current economic situation and other factors, as described above, that is in a flux.

A good case in point is Riffa views - I will attempt to link it to economics.  When I first moved to Bahrain, a 5 bedroom signature villa was being retailed for around 420K.   Rentals were high too i.e. around 1400-1600 inclusive.  There was almost 100% occupancy with a lot of expats as well as Bahraini owners who lived here with their families. 

Now come to the economic crash of 2016 and onward with falling oil prices and all that it led to i.e. removal of subsidies, push on localisation of jobs etc etc.  Suddenly people, primarily expats, started to lose jobs and even the ones who didn't, were forced to pay huge amounts to maintain their lifestyle in the form of electricity etc.  Then on top with all the news, announcements and so on; expats across the GCC experienced a mindset shift i.e. the good times won't last here and this region is relatively unstable compared to their home countries (for western expats at least). Also, the feeling was that it will get a lot worse for expats and now is the time to secure the future for themselves & their families. Then on top, economies started recovering in India, Europe and the US started booming.  So what happened?

A lot of people left.  Others started to down trade from high end luxury villas like Riffa Views to smaller ones to save on costs.  And even more so, due to the mindset change, a lot of expats started holding back on investments and even if they did invest, they limited that investment or started moving it to other countries - as a lot of options also came about for passports / residency through investment in Western & developed countries in the recent years which offer the same property values, relatively stable property market, economic / political stability and on top, security in the form of permanent residency / Citizenship.  If you think about it, almost all GCC countries have launched or made programs for residency through investment more attractive in this same time period, correct?  and this is the primary reason. 

Today, around my house, a lot of houses are vacant and have been for a long long time.  There are friends who want to sell their villas for 330, 310, 280K etc and are unable to find buyers or if they do, the buyers are expats who don't get security clearance.   Rentals have plummeted to the 1100 range.  I am even getting a rental reduction from my landlord.   This is true all across Bahrain for luxury high end properties.   

Think about it; as an expat, because of my job, I spent $165K just to get a visa in order to be able to keep my family hassle-free here. If I didn't have that problem, I would NEVER spend that money and instead spend $250K in Turkey for example, because I, not only get property (much bigger, higher quality vs. the apartment I bought in Juffair), I also get passports for myself and family.  An additional reason is that I have already done that and gotten a passport from somewhere else so there was no competing priority for my spare cash. And that and similar choices is what affluent expats are making - hence the impact on the property market especially higher value luxury property like Riffa Views.

think-tankk wrote:

God, there is so much of conflicting views. I was told that never invest in an apartment unless you have no money issues because overtime apartments value goes down whereas land/villa prices increase! I think I read about it too
TT

Now apartments generally depreciate in value as the building gets older but then again, as I said, it is supply and demand plus as I explained, Bahrain is not a representative market.  The economic drivers, as related to property here are very different as compared to other markets (population base, population growth, government subsidized housing for locals, local vs. expat lifestyle and areas, pricing for local vs. expat etc etc.).  As I explained earlier, expats are simply not willing to spend huge amounts of money especially with an uncertain future - I mean, today, why would you lock up $1 mn in a villa?  what do you get out of it as an expat?  a 10 year visa?  any person who has that amount of money is a savvy investor who will spend the bare minimum to get a 10 year visa, live in a rented place, invest in property in other countries and get passports...and still have half a million dollars left over .  So, if they must spend any money for a visa (i.e. 50K BHD) or for managing exposure in an investment in a risky environment, it has to be on lower value property like apartments, which is exactly what is happening.  Also apartments have a higher rental yield for investors due to lower maintenance and it is easy to find tenants today for apartments vs. villas.  So simply while villa prices in expat areas like RV are tanking, apartment prices are holding.

So simply put, the traditional rules you have been taught are absolutely wrong , when it comes to most GCC markets e.g. Bahrain/UAE, because the huge expat population base has a big role in supply / demand and even in places like Saudi, where expats can't buy property plus are outnumbered by locals, they have a huge role in rentals (rock bottom rentals in Saudi now).  Think about it this way, if today, Bahrain or any other country e.g. UAE, banned sales of property to expats, what will happen?  simple, the bottom will fall out of the market.

think-tankk wrote:

What’s the point of having a secure investment in properties then?! If this rule of property appreciating in value is only applicable to long term scenario i.e. 20-25 years, that’s a different story.

This is generally true over the longer term.  But again, as I said, when your population base is subject to external factors, it may not hold true always.  For example, property prices in Bahrain completely tanked post 2011 after the unrest.  In some cases, they went even lower than decades ago for a short period of time as panicked sellers sought to get out.   However, barring a huge event, they should go up but if you buy at a high and sell at a low, they would not, would they? 

Lastly, on pricing negotiation, it depends who you are buying from.  If it is a developer or a company which owns many apartments in the building, then they will NOT reduce the price by a big margin because they have tons of apartments to sell and they will not impact the value of their building, whether for themselves or previous buyers.  They will sell smartly, few apartments at a time and control the supply (the one I bought from, has 30-40 apartments in the building but only lists 3-4 at a time).  Also, keep in mind that most developer delivered apartments have an agreement with the buyer to NOT sell below a certain price without developer approval.  If it is an individual seller, you will have a lot more luck in negotiation as the person may need the money.  I can give you an example of this; in boom times for the popular apartment buildings, the indoor parking lot had NO free spaces at night and disputes between residents over wrong parking were common.  Today, in Juffair, at least in the few buildings I am exposed to, the majority of the parking spaces are empty.  What does that tell you?   people are not living there - this is in line with the types of buyers I clarified in the previous post.  Which means, the prices are not likely to go down vs. what is listed, by a huge margin as the demand is from a different nature of buyer i.e. investor.  And investors are happy to hold the investment as they can afford to.

Hi again..

Well I have been naturalized almost 15 years ago back in 2005 and the Bahraini mothers issue remains to be approved so far with the issue being raised every year time. I would rather not consider this happening soon or without major blocks…

Economics 101 - Demand and supply totally applies everywhere and even in mature markets like the West so I understand what you are saying…I believe the main point is of what drives the property values as you explained.

PS. Why would you get a self-sponsorship visa if you are on a high package job and the company would sponsor your family in any case? I thought the self-sponsorship visa is only for those who don’t have a work visa…ie it’s a pre-requisite to avail a self-sponsorship visa (that you are not working). Oh ok, you are in Saudi….self-sponsoring yourself in Bahrain –both wealthy and not working in Bahrain…but shouldn’t your work visa in Saudi provide family sponsorship? This can be short answer, I know I’m taking you to another big topic…GCC/Saudi Mix   

Finally, would you recommend to consider the option of collecting enough cash to own a small property in Bahrain as you said it’s a ‘good’ investment if you decided to live in it – in case of a small 2 bedroom apartment? Consider, the fact that we are not affluent expats rather lower middle class workers looking to be relatively long term in the country and trying to utilize the rental payments towards ownership. After all we have been in the country whole life on rents … quite frustrating when you realize as an expat there are no affordable housing options…

TT

Well it is simple; I get a work visa from my employer in Saudi but the family doesn't want to live there.  I can choose to have the employer sponsor me and them also in Bahrain (they have an entity here) as well but in the current environment, I don't want to tie my fate to them in both countries.  If I leave them in Saudi or get fired, I don't have to worry about time re: finding a job before visa is cancelled in both locations (even if they cancel Iqama, I can cool my heels in Bahrain ) or finding another company in Saudi which should be able to sponsor my family in Bahrain (limited choice of those).

Yep, that is what I meant by Economics. Supply and demand is everywhere.  My point is that in developed markets, supply and demand is more predictable & straightforward as the factors are not like those of the GCC.  The factors which influence supply and demand here (values is an outcome of supply and demand but not a direct factor stand alone) are unique to the region.

For you, I would suggest to buy a property as you are a citizen, likely to be here long time and are not confined to expat areas for property purchase (so you can probably even get a 2 bed for around 40 in Riffa / Sanad / Isa Town area).   So why not save on the rentals.

Wow amazing stuff..Bro you’re a Pro! Hehe that rhymes....
Talk about savvy investments and informed decision making....very important to save yourself from having your fingers burnt..but seems logo ko kuch pata hi nahi Duniya May..I never get this much informed advice from the professionals ..tried talking to lawyers and so called consultants....darn limited in their specific area of interest! Hope it’s not my big topic mode which scares them away 

Nah it is not big topic mode.  It is simply that the ones that deal with the public, don't understand the bigger picture.  The ones that do are pretty senior and in the back offices and never meet individual clients except maybe large corporate clients.

I am in Finance at the top management level and have two decades of experience behind me in multiple countries.  But still, you won't believe that when I deal with these consultants for my individual investments, it is really really frustrating.  They argue with me on basic concepts on which I know for a fact that they are absolutely wrong.  I once spent an hour making an excel sheet to show an agency that they were totally wrong in their calculations - got a call back from a senior guy apologizing at the end of it.  Just to give you an idea of how clueless most of these people are.

Hello again,

Big news this morning with the interest rate cut by Fed...

I am reading it does apply to Bahrain as well...but will banks actually lower their interest rates and loans will be somewhat less costlier than past couple of years or since 2008?

The last time I checked for a Home loan the interest rate being applied was 6.8% back in 2017. Also I noticed, different banks charge different interest rates! Are all banks liable to say reduce it to the 2-2.5% being discussed.

Among conventional banks whom do you recommend here for loans - personal or home loans not on the basis of service but on the basis of affordibility ie charges/hidden costs etc.

And wat is your take on Islamic banking trend world over. Do you think there is truly something like Islamic banking in Bahrain/region and if yes, which ones do you think those interested in islamic banking vs conventional banking should consider to do business with...

Here again, long topic for the weekeend...

Awaiting your 2 cents...

TT

It is only a cut of 0.25%

Generally, most GCC countries with the exception of Kuwait, have pegged their currencies to the USD.  So they usually follow the guidance from the Fed to adjust the rates on their currencies to keep the peg stable. They have already done that by the way with minor cuts to the rates. 

However, you are looking at this completely in the wrong way.  The rate, the Fed reduced is the federal funds rate, which is what banks and other financial institutions charge one another for very short-term borrowing.  The rate you get as a consumer is VERY different to this one and will include the bank's markup and risk on top.  As an example, even large corporate's who borrow hundreds of millions in riyals, for short term borrowing, pay, the benchmark rate (SAIBOR or Saudi inter-bank borrowing rate which is close to the Fed rate with the exception of a small spread maintained for economic reasons) PLUS bank markup of one point five to two percent.  For longer term loans, because the risk is over a longer period, the markup is in the range of the high 2 percent to early three percent.  So as you can see, even a large company with will pay between five to six percent for medium / long term borrowing.  YOU, as an individual consumer, will pay even more as you don't result in a lot of profit for the banks so they won't give you the same discounts as they give the large companies .

So practically, speaking, DO NOT expect the current rates being charged by the banks to vary that much - it is a small cut after all. 

My view on personal and home loans is relatively simple.  The spread is not going to vary a lot between banks but the service and transparency will. That is why I generally prefer multinational banks over local banks because in the case of any issue, multinational banks are more receptive - even if more expensive.

Look Islamic banking vs. conventional banking is a big topic.  To keep it very simple, don't expect any difference to yourself as a consumer - you will pay pretty much the same in both.  It is just the product that is packaged differently.  For example, in conventional banking, they will lend you money and charge interest.  In Islamic banking, you will end up doing a "commodity purchase or sale" contract in place of a loan agreement to ensure compliance but the end result is EXACTLY the same.  Instead of interest, you will call it "profit shares".  Instead of principal repayment, you will call it "hire-purchase agreement".  Potato or Potatto; it is the same outcome .

Hey XTang,

Amazing the wealth of info you have on the BH RE market.
way more than what realtors would try to sell you there.
My question is...in case someone already bought a 1 bedroom juffair apartment  in the late 50s...and is considering moving, what would be the fastest way to sell it, without having to give up on half of its price ?
Any recommendations? such as getting it rented first? getting a bank to finance it?
what might help making it happen? advertise it somewhere in particular? buy furniture?
thoughts?

Well, practically speaking, it's either realtors or advertise on Bahrain property world website - now property finder.

Bank financing is for the buyer not you. And you don't have to arrange anything.  If you are selling a flat then there is no point putting furniture.  People who intend to live there usually get their own. Even investment oriented people would not want to pay a premium just because of furniture.  They would rather buy it empty and furnish it cheaper than you could have .

One way to get relatively good value is to have a tenant in the flat already. This attracts investors who want rental income and also proves the rental demand of the property.

Having said all of that, the market is pretty bad right now so there will be some hit regardless. Secondly, if you did buy the apartment in the late 50's then it must be an extremely old building by now which means that there is not likely to be much demand for it.  Unless you drastically reduce price.