Development Structures
Introduction
There are a number of structures available to those who intend to undertake developments in Bahrain. A prudent developer should always consider the most appropriate development structure before undertaking any development. As part of this, a developer will need to consider the current challenges facing the real estate market, the changing development trends, and how best to exploit development opportunities whilst maximising returns and managing risks.
This article will specifically examine some of the key considerations that will affect the most appropriate development structure as well as some of the most common forms of structures used in Bahrain and the wider region.
Key Considerations
In order to determine the best development structure the following should be taken into account:
Status of Ownership
The way in which a developer holds the property will determine what structure is available to a developer.
Foreign Ownership
Bahrain, as with other parts of the GCC, is subject to foreign ownership restrictions. Foreigners may only own property in certain areas, such as tourist and investment projects of a special nature.
Foreign ownership restrictions are likely to dictate the nature of the development and how the development is structured at both the corporate and project level.
Legislation
The Ministry of Industry & Commerce in Bahrain requires a company undertaking any form of activity in Bahrain to establish a presence here. The restrictions and licensing laws imposed in relation to particular activities are likely to impact on any chosen development structure.
In addition to the above, Bahrain law may also impact on the preferred development structure, for example leases may be restricted in terms of their length and this could severely impact a development structured on a leasehold basis.
Identity of Developer
The developer may be restricted from disposing of its freehold on the grounds of public policy or as a result of specific legislation. This is certainly an issue in relation to some government entities.
Nature of Development
The nature of the proposed development, and what the developer is seeking to achieve, are also key considerations. For example, investors are unlikely to want to acquire residential property on a leasehold basis. However, a leasehold structure may be appropriate for alternative developments.
Local Market
An awareness of what the market will accept is imperative. In certain jurisdictions within...
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