Mega-city developments set to diversify the range of Saudi real estate offerings

 

The ambitious $500bn mega-city NEOM — derived from the Greek word neo (new) and the Arabic word mustaqbal (future) — project is an energiser for the construction sector and provides a promising longterm pipeline of opportunities for investors. These include Qiddiya, an $8bn entertainment complex three times the size of Florida’s Disney World; and a 34,000-sq km luxury tourism development along the Red Sea. The government anticipates that mega-projects like NEOM can move the country away from oil dependence by creating a new economy underpinned by tourism, technology and entertainment. This strategy fits into the framework of the Vision 2030 development plan, which aims to transform Saudi Arabia into a global investment powerhouse as well as a regional trading hub. With this strategy in mind, NEOM has been positioned to straddle the borders of Saudi Arabia, Jordan and Egypt, and, with a whole host of international experts involved, aims to set the benchmark for futuristic cities which transcend national boundaries.

Location

NEOM will cover approximately 26,500 sq km and comprise a city and economic zone constructed in Tabuk, close to the border region of Jordan and Egypt and the Red Sea. More than twice the size of neighbouring Qatar, the area was reportedly chosen due to its strategic location and proximity to international shipping routes. First announced in 2017, NEOM is a long-term project expected to take between 30 to 50 years to complete, with the first phase due by 2025. Currently, apart from a communications tower and a Saudi Border Guards post, the area is mostly uninhabited and largely cut off from the rest of the country. As such, one of the first phases of the project is to build a major international airport as well as roads connecting the area.

Long-Term Vision

NEOM is envisioned as a futuristic city built using the most advanced technology and artificial intelligence. The government has also posited NEOM as a more open and liberal future community where business and innovation will be prioritised. As NEOM will be designed and constructed from scratch, the government intends to integrate the latest innovations in infrastructure, power generation and mobility.

Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud has previously described NEOM as a “civilisational leap for humanity”, promising that “everything will have a link with artificial intelligence, with the internet of things.” NEOM is expected to lead the way in terms of widespread deployment of drones, driverless cars and robotics. It will also run entirely on wind and solar power, according to initial plans. Planners reportedly envisage the NEOM tech hub to be at the forefront of developments in gene therapy, genomics, stem cell research, nanobiology, arid and seawater farming, and bioengineering.

International Experts

The prospect of building the most technologically advanced city in the world from scratch has attracted the interest of numerous high-profile engineering, architecture and technology firms and figures. Within months of the government officially announcing NEOM’s development plans in October 2017, the project had already appointed global industry figures to its advisory board. At least 19 prominent international figures have all been linked to the project, including Apple’s chief of design, Jonathan Ive; Norman Foster, the architect; Carlo Ratti of MIT’s Senseable Cities Lab; Ideo president and CEO, Tim Brown; former Uber CEO, Travis Kalanick; and Ernest Moniz, a former US Secretary of Energy. Virgin Group founder, Richard Branson, was also brought in early on as one of the directors of the project.

Investment Interest

Since its unveiling in October 2017, foreign investment interest in NEOM has been gaining traction. Saudi Arabia’s Public Investment Fund (PIF), which is overseeing and funding a major economic development drive across the country, has led from the front in engaging with international partners. The PIF has been working closely with Japanese multinational Softbank to develop solar power capacity to support NEOM and the country more widely. In March 2018 Softbank and the Saudi government signed a memorandum of understanding to invest $200bn in solar power development, which would include $15bn in NEOM’s solar power capacity. That same month, the Egyptian and Saudi governments agreed to set up a $10bn joint fund in a deal crucial to the cross-border development of the project. Further afield, major Indian businesses are also reportedly actively trying to secure contracts and investment opportunities in NEOM in various sectors such as railways, hospitality, tourism, airport, housing, IT and entertainment.

Key Focus Industries

The city will reportedly focus on developing nine primary sectors: transport; biotech; food; manufacturing; media; entertainment; technological; digital sciences; and real estate. The government is hoping companies setting up shop in the mega-city operating in these sectors will generate an annual income worth $100bn by 2033, thereby boosting non-oil GDP.

Most of these sectors are currently underserved and under-represented in the country. NEOM is expected to create a large proportion of the 1.2m jobs the government hopes to create by 2030. NEOM is also set to help increase the construction sector’s contribution to total GDP — which in 2017 sat at around 4.6% — to as much as 10% by 2030.

Construction Potential

Local construction companies like Saudi Binladin Group, the country’s largest, have already secured major NEOM-related contracts. In February 2018 the government reportedly awarded the company a contract of an undisclosed value to build one of five palaces for the royal family in NEOM. Slated to be 33 times larger than New York City, NEOM’s population would need to reach around 1.4m people for the city to meet its ambitious annual income and output targets. This entails a huge pipeline of real estate projects, not to mention roads and other critical infrastructure.

Plans to build a bridge connecting NEOM to Egypt and the rest of Africa will also require a significant construction undertaking. Construction companies able to incorporate innovative technology to produce zero-carbon housing and other buildings will be prioritised, according to government statements. In anticipation of numerous construction projects, local cement producers have started raising their output. In July 2018 Bloomberg reported that local producers Tabuk Cement and Hail Cement had increased production by 20% and 55%, respectively, in the first half of 2018.

Obstacles

Despite the opportunities that lie ahead, the government has a growing list of struggling mega-developments. These include the King Abdullah Economic City, a metropolis and port located south of NEOM’s planned location, which has only attracted 10,000 residents in 10 years against a projected population of 2m. Furthermore, challenging macroeconomic conditions weighed down by a slump in global oil prices have hindered the Vision 2030 agenda. However, a recent recovery in oil prices, together with the unveiling of reforms and moves at privatisation, bode well for Saudi Arabia’s economy in the year ahead. Up until now the government has met its targets for NEOM’s development and managed to secure $56bn in countrywide investments at the high-profile Future Investment Initiative in October 2018. To buck the trend and see NEOM — arguably the world’s most ambitious construction project — as well as other mega-projects like Qiddiya, through to the end, the government will need to provide further reassurances and incentives to foreign businesses to keep investment flowing in.

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The Report: Saudi Arabia 2019

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