Al Areen Development

 

Bahrain’s real estate market is starting to feel the effects of the global economic downturn, but its more modest growth rate compared to the other GCC countries should prevent it from seeing a sharp decline. How would you describe the current climate of the Bahraini real estate market?

Al Areen Development: I believe the key point is; Bahrain has traditionally been a market that is more demand driven as distinct from supply driven which gives it much stronger fundamentals.  There’s always the old adage that the faster you go up the faster you come down.  This scenario may have happened in other regions however Bahrain has instead achieved more measured and steady growth which will ensure the markets are more sustainable and open to future growth prospects.  Certainly there has been a correction in real estate markets with the global recession, however as the market is more demand lead we certainly see Bahrain pulling out a little bit quicker. There are also many sound supporting economic factors, one of which is oil pricing.  Several key economists recently are forecasting growth in oil prices this year, some are suggesting 70 U.S. dollars a barrel in the latter quarter of the year and leading to 80 U.S. dollars in 2010.  That is going to be a boost to the economy from both a revenue and spending view point and will lead to an increase in confidence and hence an improved real estate market.

In your opinion, when can we expect markets to stabilize to rebound?

Al Areen Development: I believe the real estate market will stabilize this year; the market in my view has leveled and we will start to see some improvement toward the end of the year combined with an increase in oil prices precipitating some growth in 2010.

When we interviewed the CEO of First Energy Bank he said the growing oil prices are due to the lower value of the dollar and are not linked to actual demand.  Can you say something about this?

Al Areen Development: There is no doubt that the depreciating dollar is contributing to higher oil prices and the other important element stems from the pure macro-economic position that there appear to be no new major oil reserves being developed against a back-drop of strong demand for oil across many major developing economies.  The scenario of no new major reserves and increased demand will clearly put pressure on future prices.

What are the market needs in Bahrain, what are investors coming to invest in over here?

Al Areen Development: There’s a strong demand from local investors across most property development classe.  There’s also demand from within the GCC in various market segments across Bahrain as the Country is seen as a fertile market to do business. It is also very attractive from a tourism viewpoint given the broad level of tourist facilities available. It is a very positive tourist destination for many GCC residents from Saudi Arabia and Kuwait, given proximity and accessibility.

Al Areen Holding Company was formed in July 2004 as a joint stock company owned by the government of Bahrain, Gulf Financial House, in strategic regional investors.  How do you assess your corporate structure, does it give you an edge in how you do business?

Al Areen Development: Gulf Financial House is one of Bahrain’s leading real estate project initiators and infrastructure project developers in the region that has initiated many key real estate projects both locally and internationally. That has given Al Areen an edge in terms of expertise in concept development based on very sound fundamentals of demand feeding into a market niche and access to local and regional investor capital. Having GFH involved is a key advantage to project initiation. Also in the same vein the government’s involvement was extremely important, from planning, strategic implementation and support all around.

How ready is Al Areen to face the global economic downturn?

Al Areen Development: As master-planning developers one of our key responsibilities is to deliver infrastructure services to the entire site.  We have over two million square meters of land, of which 97% has been already sold to third party developers.  We are fortunate to have already concluded those sales and are approx 70% complete on infrastructure delivery, thus shielding us to an extent from the current market fluctuations.  We have a number of strategic partnerships with our investors/developers who have come to Bahrain to invest in Al Areen. It is important for us to protect those relationships and assist those developers in creating successful projects going forward.

How has the global economic downturn affected your operation?  You see any change in the way your investors are behaving?  Do you see a lot of cautiousness in the market?

Al Areen Development: I think it is natural that with any correction developers are often required to revisit initial projections of feasibility and demand for a particular project.  The markets have probably caused most of the investors to reassess the situation.  But by and large Al Areen, due to the factors of location and pricing structure, has different fundamentals than a lot of other projects in Bahrain. By this I mean we have come off a very low cost base for land. For example land costs were generally less than a tenth of the price of land in Seef area (at its peak). The fundamentals for developers at Al Areen are very strong from a development point of view. We all know the more you pay for land the more pressure that puts on the developers end product pricing, and all of the development costs in between. We have very sound fundamentals at Al Areen that will help the developers manage the crisis well ahead of a lot of other competition.

One of the most important factors is the location of the BIC.  Can you comment on that?  What would you say to the critics of this development?

Al Areen Development: The BIC is a phenomenal project that has assisted in putting Bahrain on the map internationally.  It has been a success every year; and just keeps getting bigger and better. This Southern region will be the leading tourist destination in Bahrain and certainly the GCC if not already.  There’s the Lost Paradise of Dilmun Water Park, the five-star Banyan Tree Hotel, which has the largest spa in the GCC; it is winning awards everywhere. We also adjoin the popular family destination the Al Areen Wildlife Park. Recently there was an exciting announcement by the government, for the @Bahrain development. We understand it includes the relocation of Bahrain’s exhibition buildings together with other large associated development elements of hotels etc which is going to be a very strong tourist and exhibition destination and a very important growth catalyst for Bahrain.

As a future tourist destination, what are the markets you would like to attract here?  What is your responsibility towards developing tourism in Bahrain?

Al Areen Development: Certainly the Water Park and the Banyan Tree Hotel have been strong contributors to the tourism sector push and we assist and work with both groups.  The Banyan Tree Hotel has initiated very extensive international marketing incl. Russia and other parts of Europe, with a push to enhance awareness both regionally and globally. It is also capturing many major awards adding to the desirability of the hotel. BTR & Water Park are getting the message out there and people are definitely responding. In terms of further new investors we are talking to overseas investors with the purpose to build on the success to date and expand our very comprehensive offer in terms of residential, tourism, and leisure. We are assisting all of our developers to deliver the best product they can.  One of our developers has engaged a leading European architect to design its integrated retail development.  Those sorts of initiatives are internationalizing the project and we encourage that sort of activity. We are pleased to work with all developers where able to assist in improving the quality and international appeal of their product. The Bahrain Government is promoting the “Heritage Tourism” aspects of Bahrain and our elements help in providing a diversity of tourist facilities.

You mentioned that 97% of the plots are sold.  What are going to be the first and second phases of development, and what about the other 5% of the plots?  What would you like to see built on them?

Al Areen Development: The sold plots embrace a range of diverse uses. There is a very substantial integrated retail shopping center which will be instrumental in serving the retail needs of both Al Areen and neighboring communities. We have an aged care hospital going to be developed to serve the broader community; not just Al Areen. There will be a very diverse mix of residential product offerings from apartments, townhouses, villas, and it is all very vertically integrated, from very affordable housing up to high end housing. We feel Al Areen is special and is set apart because it will be “completely inclusive” to the Bahrain community rather than exclusive. It is encouraging everybody to come work, live and play at Al Areen whatever their socio-economic background, so it is quite diverse. We also have quite a range of other important elements including a four star hotel adjoining the water park, which provides diversity and choice of accommodation facilities across the project. We are essentially building a city within a city that is an entire community. In terms of activities, we are marketing the remaining plots, but our main role is essentially delivering the infrastructure services for the development. At the infrastructure level, and in order to manage project capital expectations, we are outsourcing several infrastructure elements including the sewerage treatment plant (STP), and the ICT network infrastructure on a concession basis with third parties to deliver those in accordance with our stated requirements. Outsourcing some of these elements is important as going externally to the market enables us to able to achieve world’s best practice with the suppliers of those facilities, for the benefit of the developers and future occupants.

Both Gulf Holding Company and Abu Dhabi Investment House all commented positively on the sales of the residential properties in Al Areen.  Do you see a lot of interest from local and international investors to invest in Al Areen and what is the potential of the area?

Al Areen Development: There has been quite a lot of interest from international developers and investors in Al Areen due to the strength of Bahrain within the region. When you compare prices within the GCC – Bahrain has a very strong price point advantage in terms of being lower than the majority of other areas which therefore provides good opportunity for growth.  Bahrain has a real edge by its ability to offer local and international investors a very strong price point advantage coupled with a strong regulatory environment, and business friendly approach.

Now that you have achieved this very high level of selling, and are now managing what you have been selling, would you be interested in expanding to another area?

Al Areen Development: At the local level it would be a natural progression to consider expanding the project once the market fundamentals are back to full strength.  In broader terms the next step is also looking at countries in which the “Al Areen” model can be exported internationally.  Al Areen is a very sound concept and exportable development model. Given also that its approach is very much inclusive rather than exclusive to communities, the concept of creating a leisure and tourist destination related project is one that is very attractive to other Governments offshore.

In some countries this is not possible.  Which other areas or countries specifically are you interested in going to?

Al Areen Development: We believe there would be potential in North Africa for the Al Areen for example. Also India, which has a GDP similar to that of the GCC could be a fertile market.  There are a lot of markets that we believe will benefit from the Al Areen model once the global financial market fundamentals return.

You mentioned that there’s a lot of interest in investing in Al Areen.  To what extent do you think it is speculative, and to what extent do you think it is demand – based?

Al Areen Development: From what we understand from the developers who have sold to their retail market, the fair majority of sales were centered around local and regional demand.  People want to live and work in this region. Again there is the clear price point advantage but importantly the Southern region also benefits from proximity to the BIC and all of the other facilities previously mentioned. Apart from residential development there certainly are investors looking to develop commercial elements to be leased to the office & retail tenant markets. Al Areen will be a very comprehensive offering.

Once completed, how do you envisage the whole area? How many people are going to live and work there?

Al Areen Development: If you include the BIC, the @Bahrain project and the larger Southern region community, it will include many thousand people either living, working and playing in this region. And if you consider the added regular tourism visitations from Kuwait and Saudi Arabia, it is going to be a very strong vibrant and dynamic area.

What are the accomplishing dates, or when can we see this happening?

Al Areen Development: Our developers are moving ahead and within the next two to three years Al Areen should be completed. The @Bahrain’s program has not been announced, however, it’s probably not far beyond that. It is a very strong initiative by the government of Bahrain as the Exhibition market is a burgeoning market and one that Bahrain has capitalized on very well.  The government devotes a lot of time and energy into marketing and developing this sector. Any exhibition market in any country throughout the world is only limited by the quality and type of the facilities that are available, and by developing much larger and newer facilities with higher clearances and newer technologies, you can increase the scope of your offer and attract more exhibitions that wouldn’t otherwise come. We applaud the government on that initiative. It will, in our view, certainly help “round off” the appeal of this area and compliment Al Areen. The BIC has clearly been going from strength to strength which is not only evidenced by the continued success of F1 but also the very high number of other events throughout the calendar year.

To what extent is @Bahrain posing a threat to you, in terms of attracting investors, or is it part of a national Bahraini strategy to develop something congruent within the area?

Al Areen Development: It is very much the latter.  It is definitely a complimentary project that will even more so enhance the appeal of this region.  No doubt the many people that become involved in the project in the future will want to live nearby and this creates new demand. It is all part of increasing the appeal of the Southern region.

To what extent do you think Al Areen is part of a Bahraini Economic Vision 2030?

Al Areen Development: Very important.  As we said, Bahrain has become an important regional tourist destination.  We’re hoping to put some more meat on the bone in that sector in the future. We are definitely complementing the government’s efforts in that direction.  We see ourselves as a part of the vision 2030 strategy by assisting government in attracting a broader based tourist market into Bahrain. One of the Phase Two Completions is already completed which includes the Banyan Tree Resort Hotel, which is a five star luxury hotel – the best in Bahrain – and also the Lost Paradise of Dilmun, which is a water park. Can you explain to our audience a little about these projects and how important they are to the development of Bahrain? The Lost Paradise of Dilmun water park has become a renowned GCC destination.  Tourists in large numbers are already coming to enjoy the facility, and the Banyan Tree hotel is benefiting also. The water park has strong appeal GCC-wide, which again helps attract the tourist market which is important for the economy.  Equally the Banyan Tree attracts many international travellers by virtue of its strong brand and solid reputation. It is a very unique product in the sense that there are 78 villas each with its own swimming pool & jacuzzi, so it’s very different from most hotels. The villas also interconnect so you can have families of more than ten people enjoying the hotel in complete privacy.

We are delivering an award for the greenest company. You mentioned a sewage plant and also the world’s best practices; what is your policy in terms of the environment and sustainable development?

Al Areen Development: It’s a very important question and a key platform of Al Areen’s. Our environmentally sustainable design objectives are critical for the project going forward. For example, we are employing district cooling facilities for the project and are able to offer district cooling facilities to most of the developers here. That translates into considerable energy savings for the larger developers by minimizing their energy needs in relation to air conditioning requirements. It translates into very substantial savings, which is very important for the country. Resources are at a premium and it’s a very positive initiative. The other key element is the sewage treatment plant which will allow water to be recycled. The water that is treated in the sewage plant will partly be used for district cooling, and the surplus from district cooling will come back and be treated for local irrigation water. In effect we are really recycling twice. That is not only environmentally responsible, but socially-responsible as well. The other element is the incorporation of a very sophisticated ICT network, providing a platform for occupants to use the service provider of its choice and make available a wide range of new IT products available. The IT platform will enable us to operate many energy saving mechanisms into the project. For example it doesn’t make sense to have your street lights on at three o’clock in the morning, so we can utilize lighting control technologies to maximize energy efficiency. It’s a very strong overall platform and one that we’re quite proud of. This will enable Al Areen residents and occupants alike to be at the forefront of technology which will in effect future-proof the project. The use of international consultants as we have in the formulation of the above intiatives has enabled us to be at the forefront of a lot of such technologies and achieve world’s best practice.

When we interviewed different people from the real estate sector they said that one of the greatest challenges is lack of transparency in the real estate market. How do you address this issue of transparency in particular?

Al Areen Development: It is not necessarily a lack of transparency. The information is out there if you want to research it. It is simply a matter of someone pulling it all together and devoting time to interpret the information such that it becomes readily usable. I understand there are several Real Estate agents ready to address this issue.

What do you do to show the people you are operating in a transparent manner?

Al Areen Development: We do this at a number of levels. Firstly by allowing such interviews that we are always open to and willing to conduct. We also have a monthly newsletter that goes out to the several thousand people around the island, key businesses’, banks, and government, which details all newsworthy aspects of the project. We are happy to be transparent to a wider audience than just out developers and investors. We do however engage as much as possible with our third-party developers and update them on current activity and milestones achieved.

How do you facilitate the relationship between Zain or other telecom operators? Are you going to rent a network to them, and if so, what will be the added value for the customer?

Al Areen Development: Well, going back to one of our key platforms that I mentioned earlier which is to be very inclusive in this project, and everything we do here stems from that. What we are endeavoring to create is a vendor neutral ICT infrastructure that can cater for all suppliers. The opportunity will be there for many operators to be able to serve the project thus all occupants will have a variety of choice as to who they want to use. It is quite important to offer choice but also to provide a base platform that can embrace future technologies, on a cost competitive basis.

Could you address a final message to our audience and readers about Bahrain, and about Al Areen?

Al Areen Development: The Government of Bahrain and the EDB are very active in promoting Bahrain to the rest of the world and have made significant efforts to push the message out there of business-friendly Bahrain. It’s a very friendly place to do business. It has a very strong regulatory framework, and respected Central Bank which is one of the best in the region. The Government is openly encouraging inward investment at many levels. We will see Bahrain in the future as a very different place in terms of more development and reclamation that will continue on at a very energetic pace. The recent announcement of the new Central Bank will lay the important foundation for the development of a new central currency. The GCC is pulling together in a very unified way, and will become an even more significant region on the world’s stage into the future. I see Bahrain as a very strong contributor to that and we are all fortunate to be living and working here witnessing this transformation at this time.