With real estate investments now estimated to be worth $270bn and the value of new projects forecast to surpass $400bn, Saudi Arabia has emerged as a giant property play. Growth in the Saudi real estate market is steep, as measured by the local Mazaya Real Estate Index, which says that deals concluded in 2007 saw 1.2 billion square feet (sq ft) of real estate change hands, more than double the 554 million sq ft of property transacted in 2006. Invested liquidity in the real estate sector has increased from SR46.5bn ($12.4bn) in 2006 to SR100.4bn in 2007.
Now in its fourth year, the kingdom’s property boom has been fuelled by excess liquidity from high oil revenues and underpinned by reform of real estate legislation. New laws have been passed to encourage foreign investment. Subject to conditions, foreign investors can now own 100% of property and projects.
A growing population means the sector is likely to expand further. Annual population growth of 3.5% suggests the current population of more than 22 million will swell to nearly 25 million by the end of 2009 and up to 40 million by 2020. Estimates suggest about 1.2 million residential units are needed now, and about 2.9 million within the next 20 years.
Apart from such icons as Riyadh’s landmark Kingdom and Al Faisaliah towers, Saudi Arabia has few tall buildings. This is soon going to change as restrictions on high-rise developments in Jeddah and Riyadh are loosened. Both cities have introduced a generous floor area ratio for commercial buildings. Floor area ratio is the crucial factor in the construction of tall buildings as it sets the amount of floor space provided on a given plot.
The kingdom’s new tallest tower, now under construction, is the Mile-High Tower. It was supposed to reach a height of 5250 feet, although some reports now suggest the tower may turn out 1640 feet shorter due to problems with profitability and transport of materials. The tower had reached the height of about 3770 feet as this report went to press. Other projects in Jeddah include Lamar Towers at 1117 feet, Dubai Towers at 1470 feet and Corniche Tower at 885 feet. Riyadh will also see the construction of new towers, including the 1155-foot Al Rahji Tower.
High-rise developments are not limited to the country’s two largest cities. Mecca is home to the Jabal Omar development near the Grand Mosque, which will have seven 35-floor towers and six five-star hotels. It aims to accommodate between 30,000 and40,000 residents and up to 8 million pilgrims. The Rawabi Abraj Al Bait project will have towers of 25 to 65 floors and is intended to be sold in blocks of five towers which will serve as apartments for pilgrims. The Jiwar Real Estate Management, Marketing and Development Company plans to build 21 towers near Masjid Al Haram, where the Abraj Al Bait complex will have seven towers up to 1890 feet high.
Saudi Arabia has embarked on a unique mega-project of creating six economic cities in an initiative that marks an important departure from the conventional industrial cities such as Yanbu or Jubail. Each economic city is privately financed and managed and each one focuses on different industrial sectors.
Four have been already launched.
King Abdullah Economic City (KAEC) is being developed both as a commercial and residential centre focused on industrial ports and logistics, services and light industry. The population is expected to reach some 2 million while the projected investment is $26.6bn. Knowledge Economic City (KEC) will focus on life sciences and medical research, IT and technology. With an investment of $7.7bn, it is expected to accommodate up to 150,000 residents. Jizan Economic City focuses on energy and labour intensive industries. Prince Abdulaziz Bin Mousaed Economic City focuses on minerals, agribusiness and logistics, with a population of 80,000 at an investment of $8bn.
According to the Saudi Arabian General Investment Authority (Sagia), the economic cities will greatly contribute to the country’s GDP. KAEC is the largest project, located on the Red Sea coast in the north of Jeddah and consists of six major zones: Central Business District, Educational Zone, Industrial Zone, Residential Communities, Resort District and The Sea Port.
Its prime facilitator is Sagia and its masterplanning and development is led by EC, a Saudi joint stock company managed by Dubai giant Emaar Properties. The first phase of development consists of a seaport (possibly one of the world’s biggest), an industrial zone and residential communities such as Bay La Sun Village – the first residential community, to be delivered by end-2008 – and Esmeralda Suburb, a townhouse and golfing community. So far, Emaar EC has achieved SR1bn from sales of residential homes. Emaar’s CEO, Fahd Al Rasheed, describes Bay La Sun as a “fully integrated community” and says the development will feature some innovative technologies such as advanced central cooling systems.
The KAEC project reflects the drive to further expand the economy, provide its young population with employment opportunities and attract international investment. It will accommodate the Saudi stock exchange, Tadawul, the Capital Markets Authority and other financial institutions – and could create as many as half a million jobs. Mr Al Rasheed says the mega-project will play an “important role in further enhancing the socio-economic prosperity of the kingdom. It also puts the spotlight on Sagia’s Vision 10x10 to make the kingdom one of the top 10 competitive nations in the world. The overwhelming sales response highlights the trust of our stakeholders and that of the general public in the project”.
The economic cities initiative has both positive and negative sides. It has created much good publicity for the country and attracted both local and international investors. However, most attention and activity is centred on KAEC, which makes the future of the other developments less certain, as seen by investors involved in the remaining cities.
Al Khobar Lakes is a 48.3 million sq ft waterfront community development in the Eastern Province, being developed by Emaar Middle East, an associate of Dubai’s Emaar Properties, which has recently unveiled Al Nada and Al Ghadeer, the first residential villages. The project’s first phase has seven more villages to develop and has a development value of SR4.6bn. Altogether it will produce more than 2000 private villas, 11 mosques, a shopping and community centre, educational complexes, leisure and healthcare facilities and restaurants. Homes are expected to be delivered before the end of 2010.
According to Alaa Abdullah Saed, CEO of Emaar Middle East: “Al Khobar Lakes is a path-breaking development initiative for the real estate sector of the kingdom, and its unique location makes it a connecting point to the major cities in the Eastern Province.”
The development is expected to further expand the country’s economy by creating numerous employment opportunities and supporting the service sector and local industries. The project has met with an enthusiastic response from investors and home buyers.
Mr Saed says: “The launch of the first residential village in the first phase was a sell-out success, and we have launched the second village, Al Ghadeer, ahead of schedule.”
Emaar Middle East is also involved in developing the SR6.6bn Jeddah Gate mixed-use complex in the centre of Jeddah. The development is divided into two sites: the first is spread along King Abdullah Road and the second along Abdullah Al Suleiman Street.
Riyadh-based company Dar Al Arkan is expected this October to launch a multi-billion-dollar project, including residential and commercial buildings in Jeddah. In Riyadh it is working on the $1.6bn project called Shams Al Riyadh, including 8000 residential homes as well as mosques, a school and a car park. The same company is also responsible for the $350m Al Qasr project in Suwaidi, south of Riyadh, which will feature a shopping centre and both residential and commercial units.
Huge projects are under way in the Holy Cities. The Prophet Muhammad’s Mosque in Madinah will shortly undergo a SR7bn expansion. It is estimated that the mosque will be able to cater for more than 1 million pilgrims. The expansion project also features 27 plazas, each provided with a state-of-the-art sliding dome easily closed or opened depending on the weather, six 300-foot minarets, each crowned with a gold-plated crescent, and seven new entrances.
The hospitality sector is growing very fast owing to the growth in tourism and foreign investment, and is targeted by international hotel companies. The luxurious 142-room Park Hyatt Jeddah hotel is opening, with easy access to the Red Sea as well as the business district and featuring exclusive recreational facilities. For women it has an indoor and outdoor swimming pool and a relaxation area. For men, apart from a separate swimming pool with a relaxation area, facilities include three tennis courts and two squash courts, an aqua medic pool, eight treatment rooms and a gymnasium.
With the Gulf brimming with liquidity, there is plenty of finance for all this. Shuaa Capital Saudi Arabia recently closed the first tranche of its Shuaa Saudi Hospitality Fund 1, a shariah-compliant closed-end fund, which pulled in SR900m. It hopes to raise a further SR1.1bn in the second and final closing expected in coming weeks. The fund’s aim is to own and develop 17 hotel properties, several resorts and furnished apartments in the country, including 5000 rooms. It will also own 20% of a new hotel management company, which is to be incorporated in Saudi Arabia by the UAE-based Rotana Hotel Management Corporation LLC. Many more similar funds are expected to follow.