Saudi Arabia's massive King Abdullah Economic City project is switching focus to low and middle-income housing in attempt to improve poor demand.
Massive Saudi property development switches focus
King Abdullah Economic City, the master-planned development under construction on Saudi Arabia's Red Sea coast, is reconfiguring its plans to focus on more low and middle-income housing, says the developer.
"With the financial crisis we don't have as much demand and we're not developing as fast," said Fahd al Rasheed, the chief executive of the developer Emaar, The Economic City, a joint venture with Emaar, the developer based in Dubai, and the Saudi Arabian General Investment Authority.
King Abdullah Economic City (KAEC), north of Jeddah, is planned to cover more than 168 square kilometres and house more than 2 million people, clustered around a new industrial district, schools, commercial space and the Red Sea's biggest port. It is scheduled for completion in 2025.
KAEC handed over its first 170 residential units earlier this year, with another 190 scheduled for completion this month, Mr al Rasheed said. Another 300 will be handed over in the first half of next year, with prices for property ranging from 200,000 Saudi riyals (Dh195,851) to 60 million riyals.
But about 15 per cent of initial home buyers in KAEC have defaulted on their contracts and several tower developments have been delayed.
With prices rising, home sales are slow throughout Saudi Arabia, said Stefan Burch, the head of strategic consulting for Cluttons Middle East, a property consultancy.
"There's been a dislocation between price point and demand," said Mr Burch.
The biggest demand in Saudi Arabia is for affordable housing, usually priced below 500,000 riyals, Mr al Rasheed said.
To spur KAEC's projects on, outside developers will be recruited, he said. Land parcels will also be sold on which buyers can build their own homes, he said.
"We've accelerated [the low and moderate housing developments] significantly," Mr al Rasheed said.
Most of the early housing in KAEC has been for the "manager class", said John Harris, the co-director of Jones Lang LaSalle's Saudi Arabia office. Companies considering relocating to KAEC need affordable housing for their workers, he said.
"The easiest enabler to get more businesses to move up there is housing," Mr Harris said.
Housing sales have been slowed by the reluctance of businesses to commit to the development until regulations and licence guidelines are in place, he said.
"The economic drivers that would bring residents have been held back by regulations" not being in place, Mr Harris said.
KAEC will be the first development in Saudi Arabia to offer foreigners the ability to own freehold property. Foreign ownership will be a "massive" component of the development, with more than 8 million expatriates already living in the kingdom, Mr al Rasheed said.
But the details of the law, which was approved in July, are still being finalised, he said.
While housing construction has been slow, infrastructure development has been progressing rapidly, Mr al Rasheed said.
Some 50km of new roads have been completed and 15 industrial tenants have signed contracts. Yesterday, a joint venture between Greif and Saudi Arabia's National Scientific Company announced plans to build a polypropylene fibre manufacturing plant in the city.