Over the past five years, Saudi Arabia’s private devel-opers, buoyed by high oil prices and a growing housing shortage, have launched a series of urban real estate projects targeting the kingdom’s growing need for affordable accommodation. It is estimated that 70 per cent of the population of Saudi Arabia are under the age 30.
Following decisions by the municipalities of Riyadh and Jeddah to relax the height restrictions on tall buildings, the skyline of the kingdom’s major cities is also set to change rapidly as towers of up to 50 storeys replace traditional low-rise buildings.
Taking advantage of the relaxation of Saudi Arabia’s planning restrictions, local and international developers have launched a series of real estate developments.
Emaar, The Economic City (Emaar, EC), a subsidiary of the UAE’s Emaar Properties, is developing the $27bn, 167-sq km King Abdullah Economic City (KAEC). This is the first of six such economic cities, which are designed to diversify the kingdom’s oil-dependent economy and provide for the next generation of Saudis.
“Before the Saudis came up with the idea of the economic cities, the real estate market was not exactly booming,” says Kenneth Lim, business development manager with Singapore-based Jurong International, which masterplans urban developments in the kingdom. “But right now, because of the economic cities, it has pushed the market to be more vibrant.”
After KAEC, the most ambitious development is Kingdom Holding’s Jeddah project, with an investment value of SR50bn ($13.6bn) on completion. The centrepiece will be a skyscraper that could reach up to a mile in height. However, the design is yet to be finalised.
The tower will form part of a wider real estate project planned by Kingdom Holding, covering 5.3 sq km. It will be split into a residential area of 1.5 sq km, a business zone of 800,000 sq m, and a 470,000-sq m commercial area. There will also be an education area of 150,000 sq m, along with leisure and tourism facilities and hotels.
Local developer Dar al-Arkan has launched the $1.6bn Shams al-Riyadh project, a 10-sq km development of 8,000 residential units, which will be built to the north of the city.
The scheme, previously known as Riyadh Views, also includes a school, mosques and a car park. Work on the infrastructure has already begun and it is hoped that construction of the first phase will begin by the end of the year. Dar al-Arkan also plans to launch a multi-billion-dollar real estate venture in Jeddah.
The UAE’s Limitless – the development arm of Dubai World – is also pursuing a mixed-use urban residential project on the outskirts of Riyadh.
The $12bn Al-Wasl project will be a 14-sq km development to the north of the capital, housing 200,000 people in 55,000 homes, as well as offices, hotels, mosques and more than 3-sq km of open space.
The holy city of Mecca is also undergoing a massive transformation as developers capitalise on one of the world’s most expensive locations for real estate.
In the shadow of the Masjid al-Haram, the holiest site in Islam, local developers Saudi Binladin Group and Saudi Oger are involved in multi-billion-dollar projects.
The Saudi Binladin-owned Jiwar Real Estate Management, Marketing & Development Company is building the $5.8bn, 21-tower Rawabi Abraj al-Bait close to the seven-tower Abraj al-Bait complex.
Saudi Binladin is also involved in the $2.7bn Jabal Omar, which it is building with Saudi Oger. Located near the Grand Mosque in Mecca, the development will feature seven 35-floor towers and six five-star hotels over a 1-sq km site.
On completion, the development will accommodate 30,000-40,000 residents and handle up to 8 million pilgrims a year.
Contractors say land values in Mecca currently average SR150,000 a sq m, with prime plots attracting as much as SR400,000 a sq m. The equivalent site in Riyadh would cost a maximum of SR25,000 a sq m.
Emaar Middle East (Emaar ME), a property development company owned by Emaar Properties that focuses on projects solely in the Middle East region, has two major developments targeting growth areas in Saudi Arabia.
The SR6bn Jeddah Gate project is being billed as the new downtown in Jeddah. The project has two key sites: a 413,000-sq m site on King Abdullah street and a 140,000-sq m site on Abdullah al-Suleiman street. In total, 6,000 residential units will be built alongside 300,000 sq m of commercial and office space.
Emaar ME’s second major project, the $1.2bn Al-Khobar Lakes development, is a lakefront community set out over 4.3 sq km. The first phase of the project will contain nine villages with a total of 2,000 residential units.
Seera City Real Estate Development Agency is another Saudi-based developer high on the MEED real estate table. Its key development is the $6.7bn Knowledge Economic City (KEC) in Medina.
This is the third of six economic cities announced by Amr al-Dabbagh, governor of the Saudi Arabian General Investment Authority (Sagia). KEC will be developed on a 4.8 sq km site, with a built-up area of 9 sq km. The city will house 150,000 residents.
It is hoped that KEC, launched in June 2006, will provide opportunities for Saudi entrepreneurs and help the kingdom develop a knowledge-based economy.
According to Mamdood Tarabishi, project manager with the local Savola Group, part of the consortium that is developing KEC, construction work is set to start in early 2009, pending finalisation of the masterplan.
In contrast to other real estate projects in the kingdom, KEC is visibly progressing, according to one source close to the project. “The situation [in the kingdom] varies widely, “ says the source.
“You look at KEC and it is excellent. It has very strong leadership. There is a lot of activity, a lot is happening and they are making good progress.
“At KAEC on the other hand, the management seems to change weekly. [However] it seems to have settled down since the new management came in three or four months ago.”
Despite the abundant blueprints and capital in the kingdom, there are still reasons to suspect Riyadh is trying to do too much too soon. The troubled history of Prince Abdulaziz bin Mosaed Economic city in Hail is a clear example of this.
Launched six months after KAEC, and the second-largest economic city in the kingdom, the city is designed to target investment in the transport and logistics sector.
Concerns over the necessity for such a city were raised almost immediately after it was launched, and coupled with the practicalities of operating in a remote location 700 km north of Riyadh, investment and progress has been virtually non-existent.
MEED reported in August that Sagia was in discussions with other developers to co-ordinate the development of the city. In September, it was announced that Kuwait’s Al-Mal Investment Company was to be the sole developer of the project after its current developer, the local Rakisa, steps aside.
It is unclear what effect this will have but sources close to the project – which is on hold while the legalities of the handover are finalised – says key changes, such as downgrading the scale of the project, are inevitable.
Sagia has announced six economic cities in total. Four have officially been launched – Jizan Economic City completes the list – and the two further cities in Tabuk and Ras al-Zour are expected to be launched in 2009.
There can be no doubt that the sheer scale of KAEC, and the subsequent economic cities launched by Sagia, has altered the real estate landscape of the kingdom, and the wider GCC. While the problems at Hail should not be underestimated, Sagia says it is in a far better position now with the experience it has gained from KAEC.
Together with a raft of privately-led real estate developments being planned and designed for Riyadh, Jeddah and Mecca, the Saudi market is well positioned to push on and become a leader in the GCC real estate sector.
But as one consultant working on Saudi projects points out, if this profitable sector of the economy is to really take off, the government needs to adapt to the rapidly maturing market by addressing the country’s mortgage laws.
“There has not been a lot of activity in Saudi Arabia, but that is about to change in a big way,” says the consultant. “There are a vast number of projects in the pipeline. A lot will be dependent on the mortgage law that is coming in.”
A draft mortgage law has been issued for almost a year, but the legislation has not moved forward, says the consultant. “It is an important piece of legislation,” he adds. “Mortgages are not generally available to individuals, but this needs to change. If it [Riyadh] is serious about this sector, it needs a mortgage law.”
CAPTION: Troubled: Prince Abdulaziz bin Mosaed Economic City has struggled to attract investment