Bahrain residential sector will be soft for a while mainly due to oversupply and a cautious approach by investors, however, the government's aggressive plan to provide affordable homes will come as a big boost for the struggling construction sector, said a report.

The Bahraini government plans to develop three new cities in East Hidd, East Sitra and Northern Town, which is expected to provide approximately 23,000 units by the end of 2016.

The future delivery pipeline of apartments in Bahrain will lead to further oversupply in the premium segment of residential properties market, said Alpen Capital, a leading investment bank in its GCC construction report.

This is expected to put more pressure on prices as well as rentals of residential units across Bahrain, the report stated.

However, any further positive step by the government to build the proposed satellite cities in Bahrain to address the issue of affordable homes is likely to act as a catalyst for the Kindom's struggling residential construction markets, the report pointed out.

Commenting on the GCC scenario, Alpen Capital said growth was not uniform across all regions. While some Gulf countries were leading the recovery others continued to take a more careful approach, it added.

'Though the construction and real estate sector in Bahrain has started recovering from the lows of 2008-2009, growth is still far from pre-crisis levels,' Alpen Capital said in its report.

'We anticipate Bahrain's residential market to have substantial undersupply in the affordable homes segment as developers continue to focus on the premium segment of the market,' the report stated.

'Much like its GCC counterparts, Bahrain experienced remarkable growth in residential construction market in the last decade. However, the recession led to a deceleration in the construction market, which led to a decline in property prices, albeit at a slower pace as compared to its regional peers.'

'The recent unrest in Bahrain also had an adverse effect on the residential construction and real estate market which led to a weakness in both freehold as well as the leasehold segment,' the report added.

Alpen Capital said it expected the residential market of Bahrain to see substantial undersupply in the affordable homes segment as developers continue to focus on the premium segment of the market.

On the Bahraini commercial office construction market, the report said the Kingdom was facing oversupply post the global recession.

'The commercial office space in Bahrain is currently facing an oversupply leading to a significant fall in the vacancy and rental rates of office properties across the Kingdom.

'Bahraini commercial office construction will be under pressure mainly due to oversupply, subdued economic environment, reduced occupier demand, and political unrest,' the report stated.

In her comments, Alpen Capital managing director Sameena Ahmad said, 'In their quest to move away from predominantly oil-based economies, Gulf nations initiated several big projects, with construction being one of their top-most priorities in the last decade.'

'The GCC construction sector saw a period of spectacular boom and was subsequently adversely affected by the global economic meltdown.'

'Although the sector is showing signs of recovery, investors are still taking a cautious approach,' Ahmad added.-TradeArabia News Service