King Abdullah Economic City, one of four metropolitan areas under construction in Saudi Arabia, will be the first place where foreigners are allowed to own property as the kingdom seeks new sources of investment.
The city, known as KAEC and named after the head of state, is being built by Emaar Economic City, a company controlled by the Saudi Arabian government and Dubai’s biggest property developer. When completed in 2025, the $27 billion project will cover about the same area as Brussels.
In an interview, Fahd Al Rasheed, chief executive officer, Emaar Economic City, Saudi Arabia, said: “This is the first freehold city in Saudi Arabia. A lot of people want to invest in the Saudi market and see it as a frontier for real estate investment because of the population explosion here.”
KAEC, about an hour’s drive from Jeddah, is designed to house about 2 million people and generate 1 million jobs.
The city is part of a $400 billion plan announced by the government in 2008 to invest in Saudi Arabia’s infrastructure and make the country less dependent on the oil industry.
Saudi Arabia’s population has more than doubled since 1986 to about 25.5 million, according to International Monetary Fund data.
The other three cities under construction are Knowledge Economic City in Medina, Jazan Economic City in Jazan and Prince Abdul Aziz bin Mousaed Economic city in Hail. Two more economic cities are planned in Tabuk and the Eastern Province.
The Economic Cities Act issued almost two months ago makes KAEC the first place where foreign nationals and companies are allowed to own property in the kingdom, the CEO said. Regulations putting the act into effect will probably be issued within a few months, he said. The new rules will also cover foreclosures, repossessions and the creation of a land registry.
Developers are expanding in the kingdom after property prices crashed in other Arabian Gulf markets, including the UAE. Emaar Properties, builder of the world’s tallest tower in Dubai, owns 30 percent of Emaar Economic City and 40 percent belongs to the Saudi government. The joint venture’s initial public offering in 2006 drew bids from 10 million Saudi nationals.
KAEC will have the Red Sea’s biggest port and an industrial district where French oil company Total SA and US chocolate maker Mars Inc will operate. The city will be spread over 168 square kilometers (65 square miles), more than the Belgian capital’s 162 square kilometers.
Al Rasheed said: “Over the next five years, we expect to spend more than $4 billion developing infrastructure and assets in the city. This won’t be done by us alone; it would be with other partners.”
About 40 families already live in KAEC and Emaar Economic City plans to hand over 470 houses to buyers this year in the project’s first phase, Al Rasheed said. The second stage, including homes for 40,000, is scheduled for completion in 2014.
The project hasn’t escaped the economic crisis, even with a Saudi housing shortage and the kingdom’s oil wealth. About 15 percent of homebuyers defaulted on purchases and the company was forced to delay construction of 16 towers as customers struggled to make payments.
Al Rasheed said he’s now seeing an “uptick” in home sales, mostly among middle income buyers, prompting the company to start its 22,000 unit Hawadi housing project a year earlier than planned. It will start by building 750 units where prices will range from 400,000 riyals ($107,000) to 1.3 million riyals ($346,647) he said.
Al Rasheed said: “We are going to hit our stride with Hawadi. It’s affordable and within the typical mortgage range. Anybody can invest in something like this.”
Emaar Economic City is in talks with banks to finance Hawadi. Part of the funding will come from sales of houses before they are built, a type of transaction that was only made legal in the rest of the kingdom last month. Al Rasheed wouldn’t say whether the company would seek loans or sell bonds.
The delayed 16 tower development will be started again in six months after the project is redesigned and retendered to take advantage of declining construction costs, Al Rasheed said. The $373.3 million contract had been awarded to Jeddah based Saudi Binladin Group in April 2008.
Emaar Economic City closed at $2.27 in Riyadh trading yesterday, down from $8.13 on Oct 7, 2006, the first day of trading. The company reported a loss in 12 of the 13 quarters since first releasing results in March 2007, according to data compiled by Bloomberg.
The CEO said: “If you’re developing a city, you put in a lot of infrastructure. That is paid off over the long term.”
KAEC is situated between Rabigh Refining and Petrochemicals Co’s plant, known as Petrorabigh, and the King Abdullah University of Science and Technology, the first in the kingdom where men and women will share classrooms.
Al Rasheed said: “Like a lot of cities, we started with industries such as plastic and aluminum. We are linked with Petrorabigh, they are building a railway to connect us and ship their materials through our port.”
Saudi Binladin Group will help develop and operate the port serving KAEC. Emaar Economic City is discussing ways for Dubai- based maritime operator DP World Ltd to participate in the project, Al Rasheed said. The port is set to open by the end of 2011, almost a year behind schedule.
Emaar Economic City plans to prepare infrastructure for 2.5 million square meters of industrial land in the city after completing 1.5 million square meters. It’s also developing 100,000 square meters of office space for the project.
Al Rasheed said: “Offices are like any other commercial development. They require demand and a good regulatory environment, and we have both.”For all the latest Saudi Arabia news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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