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Mecca developer's stock set for worst year in a decade

[RIYADH] The biggest listed property developer in the holiest city for the Islamic world is failing to lure investors amid a slowdown in the real estate market.

Mecca-based Jabal Omar Development Co.'s stock has lost about 40 per cent this year, as investors balk at the high level of indebtedness in the industry and concern about the outlook. The company is also closed to foreign investment and, unlike some others, won't benefit from inclusion in emerging-markets indexes next year.

Apartment rental prices in Mecca have dropped 5.1 per cent and sales are 9.9 per cent lower in the first half of the year compared with a year earlier, according to a report from real estate consultancy Jones Lang LaSalle Inc. Jabal Omar's holdings include hotels, which have also been under pressure, though the sector could fare better in the second half during the peak season of hajj, the consultants said.

Jabal Omar didn't reply to a request to comment.

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The company's flagship project is a multi-use mega development within walking distance of the Grand Mosque, the most sacred place of worship for Muslims.

"Real estate developers have underperformed peers and general markets in Saudi Arabia," said Harshjit Oza, vice president of research at Shuaa Capital PSC "Factors like a low oil price, rising financing costs and geopolitical risks are acting as a headwind to sector growth." Still, he prefers Jabal Omar to other real estate developers in the country due to its presence in Mecca, where he says the market is seen as more resilient than in Riyadh.

Some other facts about Jabal Omar:

Market capitalization dropped to the 14th position in Saudi Arabia as of Dec. 10, down from 7th place last year.Market value shrunk to about US$9 billion.

Total debt climbed to 15.3 billion riyals (S$5.63 billion) as of September, up 23 per cent from the year before. Company raised about 506 million riyals from the sale last month of Islamic bonds maturing in five years. It has about 6.7 billion riyals in loans maturing between 2021 and 2027.

Most listed companies in Saudi Arabia are subject to a foreign-ownership limit of 49 per cent, while a few of them, like Jabal Omar, are fully closed to foreign investors. Such companies won't be entitled for inclusion in emerging markets benchmarks compiled by MSCI Inc. and FTSE Russell next year, events expected to trigger billions of dollars in inflows.

Last year, Chief Executive Officer Yasser Al-Sharif said the decision over whether to allow foreign investors to buy Jabal Omar shares rested with the Saudi regulator.