The Emaar Properties project King Abdullah Economic City in Saudi Arabia is expected to be the kingdom's first to welcome foreign buyers without restriction, as it seeks to bring in more foreign investment and ease its dependence on oil. But analysts say Emaar, which owns a third of the project's developer Emaar Economic City (EEC), will have to be patient. Few homes within the development, which was valued at US$80 billion (Dh293.83bn) when it was launched in 2006, have been delivered as the construction schedule spans 20 years.
Sales to local buyers are also subdued while foreign buyers might be deterred by a conservative lifestyle and laws restricting re-sales, analysts say. The project, which is located close to Jeddah, could house an anticipated 2 million people. The Dubai-based Emaar, the region's biggest developer, was invited to participate in the development by the Saudi government in 2005. This led to the creation of EEC with Dayim Modern Real Estate Management, MI Royal Capital Company, MI Strategic Investments and MI Holdings Company - all Saudi firms - among others.
"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," Fahd al Rasheed, the chief executive of EEC, told Bloomberg yesterday. The company is expected to receive a Dh4.89bn loan this year from the Saudi government to continue construction of the project, which is about 10 per cent complete.
"The freehold move will not have an immediate impact on Emaar or help it weather the crisis better," said Majed Azzam, a property analyst at Al Futtaim HC Securities. "They're not going to see any revenues coming through because deliveries have so far been very limited." While foreigners have been allowed to buy property in most of the kingdom with certain restrictions since about 2005, King Abdullah Economic City is the first freehold city available for foreign purchase.
Mr Azzam added that off-plan sales in Saudi are unpopular, and most developers have to sell properties once they are complete. "In terms of immediate demand from foreign buyers, I'm sceptical this will get things going unless we see projects turning into a reality." An analyst at Deutsche Bank, who asked not to be identified, said a law stipulating that buyers must live in the property for five years before they sell it might also deter foreign investors. "Who is going to invest there when you have freer options in other countries?" he asked.
A number of economic cities are planned for the kingdom and are expected to contribute Dh550bn to the country's GDP by 2020, according to figures from the Saudi Arabian General Investment Authority. King Abdullah is the largest, while others in the pipeline include Knowledge Economic City in Medina, Prince Abdulaziz bin Mousaed Economic City in Hail, and the Jazan Economic City south of Jeddah. Contractors have also submitted bids for the first stage of Sudair City, a Dh146.92bn development close to Riyadh.
Saudi Arabia's population has more than doubled since 1986 to about 25.5 million, according to IMF data, and is expected to reach 30 million by 2020. @Email:firstname.lastname@example.org