Bahrain's Property Market Faces New Regulations.

According to real estate consultancy Cluttons, Bahrain's government plans to implement new mandatory lease registration procedures early next month, which will help the market mature. However, planned rent rises at renewal threaten to stifle the residential and commercial markets, which have only recently begun to show signs of increased stability.Sale in Qatar

Although the exact mechanism and method for registering tenancy agreements has yet to be announced, the move will help to improve Bahrain's progressive regulatory system, bolstering the Kingdom's business-friendly appeal, which investors find very appealing.

"Any move to better control the market would be well received by the investment community," said Faisal Durrani, Cluttons' international research and business growth manager. Of course, there are a range of lessons to be learned from other parts of the country, which we hope the authorities will take into account before finalizing the new regulations.

"The most important aspect of the law should be what happens when the license is renewed. The latest draft plan calls for a 5% increase in the residential sector and a 7% increase in the industrial market after two years. For two years from the start date of the tenancy, or the date of the last raise, landlords are likely to be barred from implementing any rent increases above the accepted rate. Established landlords will have to prepare further ahead and will be restricted by the new rent limits in a sector still finding its feet after being affected by an unprecedented period of national tensions. Should the market outperform the proposed uplifts, this would undoubtedly have an effect on bottom lines. At the same time, it is extremely encouraging to see the authorities take steps to codify landlords' responsibilities and tenants' rights."

Cluttons claims that there is no ideal one-size-fits-all solution to the problem. Rental rises in mature markets such as London are often bound to inflation rates, allowing tenants to better prepare for rent increases, while rent increases in emerging markets such as Dubai are directly linked to a rent index established by Dubai's Real Estate Regulatory Authority. A similar rent index will most likely be the most feasible option for a market like Bahrain.

"The change is definitely very positive," Deborah Sellers, head of residential property management at Cluttons Bahrain, said, "but there needs to be more clarification on the mechanism by which rental agreements will be reported." Furthermore, any rules must be impenetrable, with no loopholes that enable landlords to breach lease agreements and raise rents in the middle of tenancies. As Bahrain's economy steadily improves, the residential sector has only recently begun to show signs of increasing stability. Any law must be cautiously enforced to avoid limiting this. However, it seems that tenants, rather than landlords, would be the beneficiaries of the latest plans."

The legislation's other major component is likely to be centered on land growth. Not only will developers be required to obtain a license before obtaining planning approval, but there will also be new rules governing off-plan property purchases, with all off-plan sales having to be officially reported. Developers would also be expected to open an escrow account to keep any proceeds from sales and any financing they receive.

Cluttons believes that this will help to solve the issue of projects stalling in the middle of construction and will boost investor interest for investors looking for investment opportunities; a step that will undoubtedly increase the Kingdom's investment appeal across all property segments.