A changing real estate climate

February 2018

Bahrain’s new regulatory regime for the real estate sector aims to create a system that attracts greater investment and drives market conidence and stability, writes Abdul-Haq Mohammed.

Over recent years, there have been many changes in legislation for the real estate market in Bahrain, as it tried to address the many challenges coming out of the economic downturn. This included a law specifically geared towards tackling the problem of stalled projects, as well as laws around leasing and off-plan developments. It was felt that Bahrain needed to create a system that attracts greater investment through instilling market confidence and stability.

Abdul-Haq Mohammed, international managing partner at Trowers & Hamlins and its head of international real estate says, “There has always been a philosophical debate in places like Bahrain about whether the commercial market should be regulated at all. The UK is often cited as an example of a mature jurisdiction which really regulates only the residential market and leaves the commercial world to the forces of the market. I think the decision to regulate in Bahrain comes out of an acceptance that real estate is too big a part of the economy to be left to its own devices.”

Having passed that raft of laws in 2014, the regime has been completely overhauled with the introduction of a comprehensive new real estate development law in August 3, 2017. Law No. 27 of 2017 (New Law) seeks to address a number of inadequacies which are perceived exist in the current laws governing real estate developments in Bahrain.

One of the main features of the New Law is the establishment of a real estate regulator in Bahrain (Regulator), tasked with giving direction and clarity to the real estate strategy of the country. This is perhaps inspired by the success Dubai has had in empowering a regulator (RERA) which has influenced all manner of things in the field of real estate.

The Bahrain real estate development market has contracted somewhat over recent years, although there are currently signs of some recovery with several new projects being launched. It is hoped that the introduction of the Regulator will assist Bahrain to attract international investors and further bolster a stressed sector. This is eminently achievable, provided the Regulator is well-run and the rules and procedures it introduces are clear and properly tailored to the needs of the Bahrain market. What is clear is that the Regulator’s powers will be far reaching – it will certainly have the capacity to influence and direct the market.

The firm is currently advising on the implementation of the new regulatory regime, which is on a fast-track and includes the publication of regulations across a wide range of different aspects of real estate law. There is a sense of urgency around getting the new system up and running, as the industry finds itself in a state of limbo while it waits to receive guidance from the Regulator.

Another key feature of the New Law is its provisions for common ownership.

Common ownership was previously governed by sections of the Civil Code, which was limited in terms of its interpretation and scope. These provisions may well have made sense at the time they were drafted, where common ownership would have largely only applied to small residential apartment blocks. However, as developments evolved, became larger and catered for a variety of uses, those provisions were no longer fit for purpose.

“One of the most encouraging aspects of the New Law is the fact that it recognises the complexities of modern mixed-use developments and acknowledges that one size does not fit all. It allows developers to put together bespoke schemes,” says Mohammed.

One additional item of note is the recognition of long leases and the ability to register them. Mohammed says “The creation of a new class of tenure could have a far-reaching impact, allowing for the creation of security and new avenues for charging premiums and thereby more flexible revenue streams for landowners.”

Powers and Responsibilities of the Real Estate Regulator

A key role for the Regulator is to produce a national plan for real estate development. Other powers and responsibilities of the Regulator include:

collecting and analysing data;
proposing programmes and policies for the promotion of the real estate sector;
providing awareness and guidance for people involved in the sector;
setting up rules and regulations for the enforcement of the New Law;
monitoring compliance with the New Law;
acting as a central point for all applications and working with related parties to create a seamless system;

The Regulator is in the midst of consulting with concerned authorities and stakeholders, to help inform new regulations. “Public consultations allow regulators to understand the needs and challenges of the people working within the sector, although it will be interesting to see how the Regulator the many competing voices in the industry,” says Mohammed. Information gathered in these forums are likely to be key to the success of the regulations, as it should allow laws and procedures to be drafted in a balanced and market -relevant way. “Failure to consider the particular nuances of the market can lead to regulations, which only end up strangling the sector and acting as a deterrent to investment and future growth.”

While there can be little doubt that the introduction of the New Law and the Regulator is a positive step forwards for the real estate sector in Bahrain, there is a long way to go before the laws needed to govern the sector are complete. We can expect to see many regulations introduced over the coming year and it will be interesting to see how the industry responds to them.

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