The Dubai-based developer Emaar is facing headwinds as it tries to make its mark in Saudi Arabia.
Saudi luxury development stuck in sand
Emaar Properties is struggling to sell homes in its first developments in Saudi Arabia, one of the key markets in the Dubai developer's international expansion plans.
The developer expects to begin handing over apartments and villas in the kingdom in the next few weeks in the first phases of the 6 billion riyal (Dh5.87bn) Jeddah Gate and 4.6bn riyal Al Khobar Lakes developments.
Both represent Emaar's attempt to export the style of luxury, master-planned communities it successfully built in Dubai, where it is known for developing Downtown Dubai around the Burj Khalifa, the world's tallest tower, and the Arabian Ranches villa community.
But Saudi buyers have been unimpressed, property analysts say.
"Emaar's experiences with Jeddah Gate and Al Khobar shows the challenges that can arise when you take a successful model from one market and try to deploy it in another market," said John Harris, the co-head of Jones Lang LaSalle's Saudi Arabia office.
Emaar Middle East, a joint venture between Emaar Properties and the Saudi-based Al Oula Real Estate Development Company, expects to deliver more than 1,389 homes in Saudi Arabia by the end of 2013.
In a report issued to investors in June, the company said it had sold 299 units in the first phases. Emaar officials did not respond to requests for comment.
"We are demonstrating our ability to deliver such large-scale undertakings and offer a refreshing lifestyle choice for our customers," Ahmad Al Kulli, the general manager of Emaar Middle East, said recently. "Saudi Arabia has a strong demand for homes that fit in the category of affordable luxury."
The 260-hectare Al Khobar project is located in the kingdom's eastern province, about 12 kilometres from the centre of Al Khobar and 25km from the Bahrain Causeway. The plan calls for nine gated communities with 2,000 villas, shopping centres and community complexes surrounding six lakes and a series of parks.
Emaar describes the project as "the largest integrated community" in Saudi Arabia.
But gated communities are still a novel concept for most Saudi buyers. Service charges and tightly-organised neighbourhoods have never been popular.
"Saudis tend to prefer their own home, not master-planned communities," said Mike Williams, a senior director at CB Richard Ellis, the property consultancy.
The location also makes the project a tough sell, as well as prices which start at 1.2 million riyals for a 275-square-metre villa in a typical neighbourhood, analysts say.
While there is a shortage of 400,000 affordable homes in the kingdom, there is no shortage of luxury homes, which are beyond the financial reach of the bulk of the Saudi population.
Fifty-eight per cent of households in Saudi Arabia qualify as low income, according to Jones Lang LaSalle. And home financing is still difficult and expensive to obtain for the typical family.
Only the top 10 per cent of households can afford most of the homes offered in Emaar's development.
Emaar's projects are "at the premium end of the market at prices and locations that are not at the premium", Mr Harris said.
Jeddah Gate covers 500,000 sq metres on land once used for Jeddah's airport, now billed as Jeddah's "new downtown". The first phase, Abraj Al Hilal, features three residential towers between 19 and 22 storeys.
Prices for Jeddah Gate apartments can reach 7,000 riyals a sq metre, more than those in central Jeddah, said industry analyst who asked not to be named.
But apartments outside tourist areas have always been a tough sell in the kingdom, where families hang on to homes for years and look to expand.
"Traditionally the only apartments for sale in Jeddah were on the Corniche," Mr Williams said.