Saudi Arabia has awarded construction contracts worth $250 billion since 2016, when the kingdom embarked on an ambitious plan to build mega projects and transform its economy.
Property and infrastructure projects valued at $1.25 trillion have been announced across the country including the high-tech new city of Neom, on the kingdom’s west coast, according to property consultant Knight Frank LLP. The government has also unveiled vast new tourism and entertainment projects that aim to attract visitors from around the world, while also encouraging Saudis to spend more domestically.
“Saudi Arabia will become the world’s largest construction site,” said Faisal Durrani, head of Middle East research at Knight Frank. “It is a mammoth task,” he said, and “modern methods of construction like 3D printing, modular construction and off-site manufacture must be embraced.”
The so-called giga projects are key to Saudi Arabia’s plans to transform itself into a top tourism destination and to move its economy away from its hydrocarbon dependency. To help achieve its ambitious targets, the kingdom has pledged to spend hundreds of billions of dollars. It’s also launching a new airline and a fresh airport as part of the 2030 plan led by the country’s de facto ruler Crown Prince Mohammed bin Salman.
Since 2016, contracts worth $70 billion were handed to build parts of Neom and work valued at $21 billion has been awarded by Red Sea Global for a tourism development along the west coast, according to Knight Frank.
The Red Sea project, first announced in 2017, covers 28,000 square kilometers (11,000 square miles) — an area about the size of Belgium — and will cost $23.6 billion to build. It will target regional and international luxury travelers with resorts on the coast, including an archipelago of 90 islands. The first hotels are set to open later this year.
The country also plans to build 660,000 homes, almost as much as neighboring Dubai’s entire housing supply, and add 289,000 hotel rooms, 6 million square meters of office and 5.3 million square meters of retail space, according to Knight Frank.
Affordability will be a key hurdle in a country where home sales have declined, Durrani said. Accessible price points for the new inventory will be critical to reigniting domestic demand.
“The challenge for the nation’s giga project developers will be to cater to and appeal to domestic buyers, two-thirds of whom” have budgets of under 1.5 million riyals ($400,000), Harmen de Jong, Knight Frank’s head of strategy and consultancy in Saudi Arabia wrote in the report. “With most giga projects expected to launch residential product at over $1 million, bridging this gap between demand and expectations will undoubtedly emerge as a key consideration going forward.”
Knight Frank estimates about $687 billion of real estate projects are expected to be completed by the end of the decade.
Source from: Bloomberg