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Meeting low cost housing needs

The availability of low cost housing in Bahrain and certain parts of the MENA region more generally remains an extremely topical issue.

Following on from Simon Green’s presentation at the 15th Gulf Engineering Forum in Bahrain, this article will be the first of two articles in relation to low cost housing in Bahrain. This article will specifically examine what is meant by the term ‘low cost’ housing and some of the challenges facing low cost housing in Bahrain. The second article will explore some of main procurement options for the delivery of low cost housing.

What Is low cost housing?

Low cost housing is a term used to describe housing which is priced to be ‘affordable’ to low income households. Therefore, low cost housing can include both ‘social housing’ and ‘affordable housing’. There is a considerable need for low cost housing in Bahrain. On the supply side, there are simply not enough low cost housing units in Bahrain.

This has been caused by a number of factors such as developers targeting the luxury housing market during the economic boom period given the greater financial returns available or due to Government budget/affordability issues.

On the demand side, although precise figures vary, we understand that the waiting list for social housing units now extends to over 50,000 units and that this is likely to increase by 3,000 to 5,000 units per annum. Bahrain’s population is also continuing to increase and the IMF expects Bahrain’s population to increase by nearly 15% between 2009 and 2015.

This, coupled with the fact that according to GOSI 2010 figures over 60% of Bahrain nationals earn less than BHD 450 per month, will add further demand pressure on low cost housing.

Social housing vs affordable housing

Traditionally, the main difference between social housing and affordable housing is that social housing is procured by the public sector and ownership is retained by the public sector. Whereas affordable housing is procured by the private sector and sold to end users.

However, the reality is that the above distinction is no longer accurate. For example, whilst a Government may have responsibility for procuring social housing, many Governments are moving from a ‘provider’ to a ‘facilitator’. Consequently, the responsibility for procurement in relation to social housing is often transferred to the private sector (as is the case under a public private partnership (PPP)).

In addition, social housing may also be made available for ownership by end users in Bahrain. It is common in Bahrain for a social housing unit to be offered by way of a rental agreement. However, at the expiry of the rental agreement, an end user may be able to acquire the freehold of its unit. This could be achieved through either a ‘rent to gift’ or ‘rent to buy’ arrangement.

The important point to note is that affordable housing is private housing which is really targeted at those low income households which sit directly above the households eligible for social housing.

Ownership and eligibility

Affordable housing units are usually sold on a freehold basis and can be acquired by end users using a traditional mortgage or an Islamic finance structure. Certain end users may be able to benefit from a mortgage guarantee scheme supported by the Government as well as subsidised housing loans.

Unlike affordable housing units, ownership of social housing is generally retained by the public sector indefinitely or for a specific period of time with rent being paid by the occupier/end user. In Bahrain, we understand that the rent payable by a household for a social housing unit is capped at 25% of the relevant household’s monthly income.

In terms of the eligibility for a social housing unit and / or a subsidised housing loan for the purposes of an affordable housing unit, our research indicates that:

  • where a household’s income does not exceed BHD 900 per month, it will be entitled to apply for either a social housing unit or a subsidised housing loan
  • where a household’s income exceeds BHD 900 per month but does not exceed BHD 1,200 per month, it will only be entitled to apply for a subsidised housing loan, and
  • where a household’s income exceeds BHD 1,200 per month, it will not be entitled to either a social housing unit or a subsidised housing loan.

In relation to a subsidised housing loan the maximum amount available has been increased from BHD 40,000 to BHD 60,000 and the available term has been extended to 30 years. However, the required loan to value ratio remains at 80%, which continues to impact on affordability. We understand that subsidised housing loans are provided by Eskan Bank (the Government of Bahrain’s housing bank).

Challenges facing low cost housing

Some of the main challenges facing low cost housing in Bahrain are set out below.


In relation to the public sector, a Government may experience affordability issues when procuring or facilitating social housing. For example, and in relation to a traditional procurement model, the Government will need to fund the capital expenditure in relation to the project. Even where this is not the case (for example, under certain types of PPP), the Government may still need to make payments to the private sector over a long period of time.

In relation to the private sector, the price of affordable housing units and whether such units are affordable to end users are key issues. Prices are influenced by a number of factors. Some of the main factors are:

  • The relatively low income levels restrict the total mortgage which can be obtained. There is also a lack of detailed financial information in relation to this sector, which means that the private sector is unable to make informed development decisions. Both issues are likely to compound the mismatch between pricing and affordability.
  • The ability to obtain financing and on what terms is a key issue. An increase in the maximum subsidised housing loan to BHD 60,000 is of limited benefit if the majority of Bahrain nationals are unable to obtain it due to their current monthly salary. The high loan to value ratio will also impact on affordability as it means that a household will need to find a sizeable deposit before they can acquire an affordable housing unit.
  • One of the main causes of the gap between pricing and affordability is as a result of high land values in Bahrain. Speculative demand drove prices up during the economic boom period to unsustainable levels. High land values have a significant effect on the sale price of affordable housing units and put further downward pressure on development returns.

One of the key challenges facing the delivery of social housing units is how to deal with the expectation of the size and type of the social housing unit. Traditionally, those requiring a social housing unit have sought large villas. However, such requirements are not necessarily feasible (both in relation to delivering the number of units required from a limited land bank as well as from an economic perspective).

One of the reasons for the above expectation is due to regulations which prohibit Bahrain nationals from disposing of their social housing unit for a specific period of time or until the expiry of the rental agreement. The actual terms of the restrictions may vary according to the project and the area. It may also be possible for an end user to lift this restriction by making an application to the Ministry of Housing but details regarding the process for doing so and the timeframe are unclear.

The result is that there is a perception that a social housing unit may be the relevant household’s first and only home, which creates a demand for a large villa as opposed to an apartment.

Land availability

The availability of land is also an issue. Notwithstanding that there has been significant reclamation over the last 5 to 10 years, there is a limited land bank which can be utilised for low cost housing. Where such land does exist, zoning requirements often compound the issue.

For example, a particular plot of land appropriate for low cost housing may currently have a zoning designation which does not permit such development. The ability to apply for and obtain re-zoning is not always straightforward.

Efficient procurement

Given that most social housing projects are large scale and relatively complex projects which require significant ‘hard’ and ‘soft’ infrastructure, even the most efficient procurement models may still have significant lead in times and construction programmes.

Urban planning

This can encompass a number of factors. For example, it could relate to whether the development of low cost housing should be located in one geographic area or spread out over a number of different areas and whether it should be delivered in phases so as to mirror other forms of development in the particular area.

A further factor may be whether a Government requires a certain percentage of low cost housing to be built in relation to a particular development as part of providing planning permission. This is commonly referred to as a ‘planning obligation’, and is an alternative solution for a Government to ensure the delivery of low cost housing.

Such considerations should largely be driven by and reflect a transparent urban planning and development strategy.


There are a number of challenges and structural issues in relation to meeting low cost housing needs in Bahrain which will only be addressed by the engagement of all stakeholders.

What is clear is that the demand for low cost housing looks set to continue to increase over the short to medium term despite the concerted efforts of both the public sector and private sector in Bahrain. Consequently, the options for procuring the delivery of low cost housing are extremely important, and will be discussed in more detail in our next article.

This article was written by Simon Green.

For more information, please contact Simon on +973 17 133206 or simon.green@crsblaw.com