National stability and improved economic conditions are helping to drive growth in Bahrain's residential property market, finds the latest research from a real estate consultancy.

According to Cluttons Spring 2014 Residential Market Outlook report, the government's wide ranging investment programme, which is underpinning job creation, is expected to drive future economic growth.

The improving sentiment has helped to lift confidence levels amongst investors and developers, who are making a slow, but steady return to the market.

Similarly, in the lettings market, increased stability and job creation are helping to drive both demand and rental value growth.

Cluttons reports that average villa rents in areas such as Amwaj Islands have edged upwards to BD1,450 per month from BD1,400 per month.

This has been caused by a depletion in existing stock at Amwaj Islands, due to its popularity amongst the expatriate community.

The report also points to rising tenant interest in villas in Saar, with average rents rising by 2.5 per cent in the first quarter to BD1,000 ($2,638) per month, which leaves them 10.8 per cent higher than this time last year, making it the best performing villa submarket over the same period.

Saar's close proximity to schools and its strategic location on the coast makes it an attractive option for families who were previously forced to relocate further inland.

"The gradual increase in rents reflects the rising demand for villas in this submarket from families, who are relocating to take advantage of the relatively stagnant rents as national stability levels strengthen, while at the same time upgrading to what they perceive to be higher quality housing," Cluttons Bahrain head Harry Goodson-Wickes said.

The report also highlights the hydrocarbon sector as a notable generator of jobs and therefore tenants.

As multiple sectors continue to expand, the lettings market is expected to benefit from a broadening tenant base.

With landlords remaining on the back foot, however, Cluttons does not anticipate a rental value surge during the year.

With budgets remaining largely stable, landlords are keen to retain tenants while showing greater flexibility with asking rates.

This is expected to further dampen the prospect of any sudden uplift in the performance of the lettings market.

Improved economic conditions in Bahrain are also supporting a resurgence in the sales market, where Cluttons has seen a gradual resumption in development and buyer activity.

Developers are now returning to the market as confidence returns among investors, with Saudi and Bahraini buyers amongst the most active groups.

"With recent increased market activity, off plan sales are picking up once more," Mr Goodson-Wickes said.

"For instance, the new 405-unit Fontana Gardens scheme in Juffair was launched in early February and off-plan prices currently stand at around BD900 per sq m; similar to the rates being achieved in the completed Fontana Towers, highlighting the rising investment appetite, which is being buoyed by the rising confidence in the market," he added. – TradeArabia News Service