Mecca’s building boom

Saudi Arabia’s most populous region is undergoing a major transformation, with the 20 largest projects planned or under way worth more than $280bn. Published in MEED, 21 November 2013

With the Hajj season over for another year, life in Mecca can return to normal. In many areas, this means a renewed focus on construction work, both in the city and in the surrounding region, as the government and private developers strive to provide enough houses, transport links and basic utilities to meet growing demand.

The investment involved in these schemes is huge. The 20 largest projects planned or under way in the Mecca region have a combined budget of more than $280bn, according to regional projects tracker MEED Projects. That is equivalent to the total value of project activity in Qatar and larger than the entire market in Kuwait, Oman or Bahrain.

Large population

The need for such a scale of spending is clear, considering the number of people who visit or live in this corner of the kingdom. In 2012, some 1.7 million Hajj visas were issued to pilgrims, along with about 5.5 million Umrah visas, according to the Saudi embassy in Washington. Even without devout tourists, the region would be the most populous in Saudi Arabia. According to the most recent statistics from the Saudi Arabian Monetary Agency (Sama), the central bank, some 7.2 million people were living in the Mecca province in 2011, or 25.5 per cent of the country’s total population. That was marginally ahead of the Riyadh region, which had 7.1 million residents.

The nature of the tourism market in particular, which sees huge numbers of visitors arrive in a very short period of time, means being able to move people in and around the area efficiently is critical. This is behind the ongoing efforts to improve Mecca’s transport systems. In November, firms were invited by the Development Commission of Mecca & Mashaaer to prequalify for the civil construction deal on the first phase of the Mecca Metro, which involves a 180-kilometre, four-line railway with 88 stations and is part of the wider SR60bn ($16bn) Mecca Public Transport Programme (MPTP).

Bidders have until 5 January to make their submissions for the metro deals, which will cover the partial construction of two lines, including 26km of track and 12 stations along Line B and 20km of track and 10 stations for Line C. Subsequent phases will cover the construction of the 27.7km Line A and the 34.1km Line D, as well as extensions to lines B and C.

Contracts for a bus rapid transport system, another crucial part of the MPTP, are also due to be tendered before the end of the year. This will involve 1,700 buses plying routes across a 123km network and stopping at 147 stations.

There are several other rail projects planned around the province, including a three-line metro in Jeddah. The contract for the engineering and design work is expected to be awarded before the end of the year and will be followed by prequalification for the main construction deal in early 2014. The $13.7bn, 444km Haramain High Speed Rail Network project is at a more advanced stage and should be completed by the end of next year. This scheme is being developed by Saudi Railways Organisation and will connect Mecca, Jeddah and Medina.

Other parts of Mecca’s transport infrastructure are also benefiting from investment. The General Authority for Civil Aviation (Gaca) is pouring $28bn into the expansion of King Abdulaziz International airport, the main entry point for visitors to the region. Its existing terminals are being revamped and new facilities added, which should take the airport’s capacity to 80 million passengers a year by 2035.

Transport forms only one part of the overall projects market and, despite the size of the rail and airport schemes, they are dwarfed by some of the mixed-use real estate projects. The most significant is King Abdullah Economic City (Kaec), which is being built 100km up the coast from Jeddah. It is designed to provide homes for 2 million people once completed and is being developed by Emaar, The Economic City, a subsidiary of Dubai’s Emaar Properties.

The scheme is part of a wider plan to create a network of new cities around the province, but the grand vision has not always proceeded smoothly. Some elements of the Kaec project have been cancelled or stalled, including a $3bn steel plant cancelled by the local Al-Rajhi Steel Industries in May, as well as a $4bn Education Zone and a $4bn Financial Island, both of which are on hold.

New developments

Nonetheless, other elements of the megaproject are moving ahead. In early November, the local Rezaik al-Jedrawi Company was awarded a SR313m deal to build the first phase of Al-Waha Community, a middle-income housing scheme in the city. This will cover some 180,000 square metres and comprise 650 units. Alongside this city, the existing towns and cities of the region are also expanding, with large new residential, commercial and mixed-use developments.

Among the biggest is the $20bn Mecca Gate development planned by the local Al-Shamiyah Urban Development Company on the western outskirts of Mecca. This will provide homes for about 600,000 people once complete.

Closer to the heart of the city, the local Jabal Omar Development Company is pressing ahead with a $3.5bn project next to the Grand Mosque. This scheme involves a collection of 37 buildings and will transform the look of the central area. The first three phases are currently being built and design work is ongoing on the fourth and fifth phases. The Grand Mosque is itself being expanded at a cost of $2.5bn to accommodate up to 500,000 worshippers at a time.

Jeddah is also seeing some large developments, including the $20bn Kingdom City by the local Kingdom Holding. The plans for this scheme include the Kingdom Tower, which will vie for the title of the world’s tallest building once complete in 2017. With a height of at least 1km, it will be more than 170 metres higher than Dubai’s Burj Khalifa, which currently holds the title.

On a more prosaic level, Jeddah Development & Urban Regeneration Company also has several large schemes in the pipeline, including the $13.8bn Al-Ruwais regeneration project. Meanwhile, Emaar Middle East is working on the $4.7bn Jeddah Gate development, which will provide 6,000 residential units.

Heavy investment

Underpinning all these schemes is heavy investment in utilities, hospitals and education. Some of these projects rival the biggest real estate schemes in terms of cost. Saudi Electricity Company (SEC) is spending more than $18bn on upgrading the province’s power generation and transmission networks, according to MEED Projects. National Water Company is also planning to invest SR15.7bn in water schemes in Jeddah and a further SR10.7bn in Mecca and Taif.

On the healthcare front, the $1bn King Abdullah Medical City in Mecca will provide 1,500 beds and a range of specialist departments. Nine prequalified bidders were due to submit their offers for the three-year construction contract by 12 November. Meanwhile, the Higher Education Ministry is spending about $2bn on building up facilities at King Abdulaziz University in Jeddah, Umm al-Qura University in Mecca, and Taif University in Taif.

Whether the current clampdown on foreign workers in the kingdom will slow progress on some of these schemes remains an open question. An amnesty period for expatriate workers to correct their visa status or leave the country came to an end on 4 November. The Saudi construction sector depends on plentiful, cheap foreign labour and the current policy is likely to cause some difficulties, at least in the short term.

Labour shortage

Local investment bank Samba stated in an update on the Saudi economy in November that “the crackdown on illegal expatriate labour … might disrupt sectors such as construction and retail”. If the disruption persists, the government will have little option but to change its approach. There is high demand for houses, hotels, offices and factories across the kingdom that needs to be addressed. With its large settled population and huge, regular influxes of religious tourists, that is as true in the Mecca province as anywhere else.