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Stalled mall highlights Saudi market weakness

2 May 2023

Commentary
Colin Foreman
Editor

In an interview with MEED in 2011, the head of a Dubai government-related property developer reflected on the 2008 global financial crisis and the company’s attitude to risk in the future. “We do not like to take risks with our own money,” he said.

The comment was a stark departure from the development model Dubai had deployed for much of the previous decade, when government-related property developers invested heavily in infrastructure for ambitious real estate projects.

The comment was also a sign of things to come. While Dubai announced and delivered major new projects over the decade that followed, the level of investment required was scaled back. As much as possible, projects were self-funded with off-plan sales and equity investors.

Saudi Arabia in 2023 shares many similarities with Dubai in the 2003-08 era. Most of the Saudi projects are, so far, not selling property off plan. If anything, development is more centralised, with the majority of the entities developing projects being subsidiaries of the Public Investment Fund (PIF).

There is also little foreign direct investment (FDI). One of the exceptions that proved the rule was the $1.6bn Mall of Saudi project in Riyadh planned by Dubai-based developer Majid al-Futtaim (MAF). The decision to put those plans on hold once again highlights Saudi Arabia’s struggles to attract FDI. In 2022, the kingdom attracted $7.9bn of FDI, well below the $19.3bn registered in 2021.

Saudi’s FDI targets are ambitious. Vision 2030 calls for FDI to reach 5.7 per cent of GDP by 2030. The kingdom’s GDP exceeded $1tn for the first time in 2022.

While MAF has not officially stated the exact rationale for putting its plans for the Mall of Saudi on hold, competing projects are a concern for developers coming into the Saudi market.

While the PIF initiatives are critical for Saudi Arabia to achieve the economic diversification goals outlined in Vision 2030, the danger is that these projects could crowd out other potential investors. A delicate balance will need to be struck.

MEED's latest special report on Saudi Arabia includes:

> GIGAPROJECTS: Saudi Arabia under project pressure
> ECONOMY: Riyadh steps up the Vision 2030 tempo
> CONSTRUCTION: Saudi construction project ramp-up accelerates
> UPSTREAM: Aramco slated to escalate upstream spending
> DOWNSTREAM: Petchems ambitions define Saudi downstream
> POWER: Saudi Arabia reinvigorates power sector
> WATER: Saudi water begins next growth phase
> BANKING: Saudi banks bid to keep ahead of the pack
> DATABANK: Riyadh holds its buoyant economic heading

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Colin Foreman

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