Development plans for West Saudi Arabian cities unveiled

 

After a slower period for developers, 2017 saw a wave of new mega-projects announced in the Kingdom, with cities including Taif, Jeddah, Makkah and Medina set to host new large-scale developments. The emphasis was on providing needed homes for the growing Saudi population and driving further economic diversification, with projects aiming to attract investors in sectors such as tourism, technology and green energy.

The biggest announcement of the year came in October 2017 when Crown Prince Mohammad bin Salman bin Abdulaziz Al Saud unveiled plans for the $500bn Neom project, a vast technology- and innovation-focused development zone on the Gulf of Aqaba.

Stronger Confidence

The government’s fiscal consolidation programme in the wake of lower oil prices has led to a reappraisal of some projects on the docket, with authorities looking to pare back the deficit – which fell from 12.8% of GDP in 2016 to 8.9% in 2017, according to international media – and balance the budget by 2023. Although moves to shore-up spending with lower revenues were expected to have a negative impact on construction companies, the early months of the year saw the environment brighten somewhat, as the government accelerated the payment of delayed invoices to contractors. Then in March the international media reported that positive meetings between the authorities and the private sector had strengthened confidence in the outlook for project development.

New Taif

In a meeting with King Salman bin Abdulaziz Al Saud in October 2017, Saad Mohammad Mareq, advisor to the governor of Makkah, announced more details of the SR11bn ($2.9bn) New Taif project – an ambitious development north-east of Taif and east of Makkah on a 1250-sq-km site. The project will include an airport, a technology centre, residential units, industrial zones and an education city.

Construction of the SR3.1bn ($826.5m) airport, spread over a 480-ha site, is already under way, with the General Authority for Civil Aviation having signed a contract for its development and operation with a consortium including the regional Consolidated Contractors Company and Flughafen München, the operator of Germany’s Munich Airport. The new airport is expected to be operational in 2020.

State-run Saudi Press Agency reported that 18 projects will be offered to the private sector, and there are likely to be many more opportunities for subcontractors and suppliers. A tourism-oriented development called Souk Okaz city in Taif will be supervised by the Saudi Commission for Tourism and National Heritage, and will host cultural and historical attractions, including museums and 1250 hotel rooms, with the aim of creating 4400 jobs and attracting 260,000 visitors per year.

Pilgrim Centres

The government’s Public Investment Fund (PIF), first established in 1971, is rapidly becoming one of the country’s most important drivers of development across a range of sectors. Real estate is one of these, as the fund looks to support targets laid out in Saudi Vision 2030, the long-term development plan, such as boosting tourism and ensuring that the affordable housing gap is closed.

In October 2017 the PIF unveiled two new development companies, Rou’a Al Madinah – which will focus on the Medina area – and Rou’a Al Haram, focusing on Makkah. Rou’a Al Madinah is to develop approximately 500 housing units and a total of 80,000 hotel rooms on 130 ha 1 km from the east wing of the Prophet’s Mosque. A pedestrian passage system is being built around the development, with public transport infrastructure being upgraded as well. The PIF said that the project was intended to “enrich Al Madinah’s religious, cultural and historical offerings”, and that the first phase would be launched in 2023.

Rou’a Al Haram, meanwhile, will focus on improving infrastructure around the holy sites of Makkah, including the Grand Holy Mosque. The first phase will see 115 buildings developed on an area of 854,000 sq metres and is set to be completed in 2024. The first stage will supply 9000 residential units, 360,000 sq metres of commercial space and prayer areas for more than 400,000 worshippers. The company is also planning to develop some 70,000 hotel rooms. Initial preparation on Rou’a Al Haram’s projects were already under way in mid-2017, with construction due to start in 2018. The PIF expects the project to contribute SR8bn ($2.1bn) per year to GDP, generating 160,000 new jobs by 2030.

One of the major aims of the dual investment is to improve conditions for pilgrims visiting the holy shrines and ensure that the cities around them are able to manage the millions of arrivals every year. Recent incidents caused by overcrowding have led the authorities to lower quotas for pilgrims from abroad, counter to the government’s long-term aim of encouraging more visitors. Renewed infrastructure will improve safety and allow the Kingdom to better perform its role as the most important pilgrimage centre in the Muslim world.

New Jeddah Downtown

In September 2017 the PIF announced the launch of an SR18bn ($4.8bn) redevelopment of Jeddah’s corniche under the New Jeddah Downtown project, which is expected to roll out over the next 10 years. Construction is expected to begin in 2019, with the first phase of development to launch in 2022. The initiative should provide a substantial boost to regional construction industry, with the PIF estimating that development works will create 36,000 jobs.

Residential zones will account for 42% of the 500-ha development area, supplying more than 12,000 units accommodating 58,000 residents. Some 35% of the allocated land will go to retail and entertainment, 12% to offices, and 11% to hotels and hospitality. Tourist attractions will include museums and a yacht marina, as well as sport facilities, amusement parks, and social and cultural centres. The project is designed to support the Vision 2030 goals of developing tourism and providing new non-oil investment opportunities, as well as driving regeneration in Jeddah and supporting its goal of becoming one of the world’s leading cities.

Neom Mega-Project

Shifting focus further up the western coast, Crown Prince Mohammed bin Salman announced in October 2017 what may be the most ambitious development initiative in the Kingdom’s history – the $500bn Neom project. Covering 26,500 sq km and nearly 470 km of coastline in the north-west of the country near the border with Jordan and across the Gulf of Aqaba from Egypt, Neom is envisioned to be an innovation-focused mega-city. When completed, this expansive development will be over 30 times larger than the size of New York City.

Neom is designed to spread into both Egypt and Jordan, making it a truly international investment zone. The location itself creates a major competitive advantage: bridging Asia and Africa, the zone will sit adjacent to one of the world’s most important shipping routes linking Europe, East Asia and beyond. Furthermore, official data suggests that some 70% of the world’s population is within an eight hours’ flight of the area. Neom will also link to the King Salman Bridge, a 32-km causeway that will stretch to Egypt’s Sinai Peninsula.

The city is backed by the government and the PIF, which can help connect Neom to its worldwide network of investors and businesses. International press reports have said that some of the funding will be raised through the initial public offering (IPO) of state-owned oil giant Saudi Aramco. The IPO, where 5% of stock in the world’s biggest energy company is set to be released, is expected to generate $100bn.

Perhaps the most unique identifying feature of Neom is that the city is designed to be supplied solely by renewable power sources – mostly wind and solar – thus supporting the Kingdom’s aim of making its development less fossil-fuel intensive and becoming a centre for clean energy investment. To lead the development is the newly appointed CEO, Klaus Kleinfeld – a former chief executive of German industrial giant Siemens and US aluminium company Alcoa.

Future Focus

According to Crown Prince Mohammed bin Salman, Neom will focus on nine specific sectors that are seen as having particular potential to assist with the pursuit of development goals: energy and water, mobility, food, biotech, technological and digital sciences, advanced manufacturing, media, the future of living and entertainment.

The zone aims not only to attract established international businesses, but also to become a global centre for incubating innovation through public and private investments. Indeed, Neom is expected to become a major locus for a new wave of foreign investment that the government aims to attract in the coming years, although the PIF additionally hopes that the project will further broaden possibilities in the Kingdom for local investors, businesses and high-net-worth individuals looking for domestic opportunities.

Activities within Neom will be governed independently of the rest of the Kingdom, allowing more scope for a flexible approach towards regulation and investment legislation. Therefore, investors, businesses and innovators will play a central role in the zone’s development in this regard.

Moreover, with its focus on innovation, technology and diversification, Neom is designed to operate the latest instruments and software in a wide range of areas, from e-government and e-learning to net-zero-carbon construction and advanced health care; specifically, automation and robotisation will be promoted. In addition, an emphasis will also be placed on efficiency and digitalisation of the administration of official procedures. While a detailed masterplan had yet to be published at the end of 2017, the first phase of Neom is slated to be complete by 2025.

Projects like Neom, New Jeddah Downtown and initiatives in the holy cities are surely set to provide substantial business for developers and contractors in the coming years, from the masterplanning phase to infrastructure construction and finally to property management, giving new impetus to the construction and real estate sectors over the medium and long term.

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The Report: Saudi Arabia 2018

Real Estate & Construction chapter from The Report: Saudi Arabia 2018

The Report: Saudi Arabia 2018

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