The developer of a long-delayed $8.8 billion (Dh32 bn) project in the heart of Mecca has signed a deal to start construction on a large portion of the development.
Saudi Arabia's Jabal Omar Development said it awarded a 3.4 bn riyal ($908 million) contract to Nesma & Partners Construction for the first phase of the project, located on 23 hectares neighboring the Grand Mosque. Nesma was given a 24-month contract to start on a section of the project overlooking Ibrahim al Khalil Street, according to a statement Jabal Omar issued to the Saudi Arabia bourse yesterday.
Plans for the development call for at least three luxury hotels, hundreds of shops and air conditioned prayer facilities for 100,000 worshippers, as well as housing for 87,000 people.
Six hundred properties have reportedly been organised for the redevelopment project.
"By consolidating land holdings they now have the opportunity to develop large scale tourist facilities," said John Harris, head of the Saudi Arabia office for Jones Lang LaSalle.
The term of the agreement with Nesma will be 24 months from the date of delivery of the site, according to a statement released by the company on the Saudi Arabia bourse.
Jabal Omar was formed in 2006 by the Makkah Construction and Development Company to develop the project. The company raised $537 million in 2007 by offering a 30 per cent stake in the company in an initial public offering.
But the company has struggled to raise financing to fund the project, in the wake of the global credit tightening and the drop in oil prices.
"The new developments proposed for Mecca are of such a scale it takes a long time to put financing together," said Mr Harris of JLL.
But there is a large demand for new facilities in Mecca, analysts say. The number of pilgrims is expected to double within the next decade, according to a JLL study, which also found that only 10 per cent of the hotels in Mecca meet international standards.
In October Jabal Omar announced a 1.35 billion riyal in bridge loans from five banks, as well as plans to issue sukuks worth 3 billion riyal.
Ina statement issued when the funding was announced, Jabal Omar chairman Sheikh Abdul Rahman Faqeeh said, "We are fully committed to completing this mega project which serves visitors to the Haram, a landmark so precious to the hearts of all Muslims around the world."
The company reported a 11.3 million riyal loss for the fourth quarter Sunday, compared to a 1.5 million riyal loss in the same quarter of 2009.