Sales of residential property in Bahrain have all but come to a standstill, with the real estate sector facing significant challenges in the next two years according to CB Richard Ellis (CBRE).

Property sales in 2009 were greatly affected by the prohibitive cost of mortgages, however it could get worse as low transaction activity and unsuitable products in the development pipeline could cause real issues in the Gulf state in 2010.

Although very few residential projects have actually been cancelled, many have been put on hold or delayed indefinitely until new construction contracts have been negotiated according to the report.

The report stated: ‘Many projects will be held back because economic circumstances have altered so significantly since the original land purchases were made that they simply do not stack up any more, especially at the often excessive prices paid for the land.’

However, despite rental rates for residential properties holding up reasonably well, lease rates for quality apartments in prime areas such as the Seef District and Juffair have fallen by -10% since Q4 2008 compared to over 50% in some parts of Dubai.

The report said: ‘During 2009, there has been a slight downward trend in achieved rents and we would expect this to continue in the short term as new supply enters the market.’

However, according to the report, investors who had been key to virtually all the residential development markets in the region have mostly withdrawn as they re-evaluate their positions or seek to establish what the true value of property is in current market conditions.

The report said: ‘Until we see a positive rebound in terms of transactions and prices, the investor/speculators are likely to hold their fire with the result that off-plan apartment sales in particular are likely to be subdued for at least the next year.’