June 16 (Bloomberg) -- Emaar Properties PJSC, the Middle East’s largest developer, is trying to generate more revenue in Saudi Arabia to make up for a slump in Dubai, its main market.

Emaar won a contract last week to build the world’s tallest tower in the Saudi Arabian city of Jeddah for Prince Alwaleed bin Talal’s Kingdom Holding Co. Saudi Arabia, the biggest Arab economy, plans to spend $400 billion in the next five years on oil-production facilities and infrastructure projects, offering more opportunities for developers such as Dubai-based Emaar.

“Dubai’s own market is saturated, so its developers are ‘going global’ in terms of expertise,” said Abdul Khaleq Abdullah, professor of political science at United Arab Emirates University in Al Ain. “If the Saudis want to compete with Dubai, so be it. Oil is above $70 a barrel, demand is there and the investment is there.”

In Dubai, one of seven sheikhdoms that make up the U.A.E., developers are delaying or canceling projects as the worst financial crisis since the 1930s curtails lending. Emaar is already building the world’s tallest skyscraper in Dubai, though that’s set to be eclipsed by Jeddah’s Kingdom Tower with a planned height of 1,000 meters (3,280 feet).

Dubai’s Slump

Dubai’s property market was hurt more than others by the global financial crisis. Home prices tumbled about 50 percent from their peak and may drop another 20 percent this year, Deutsche Bank AG said June 10. The market’s collapse followed a construction boom that created thousands of homes just as demand began to evaporate.

The slump in Dubai, where Emaar generates about 84 percent of its revenue, caused the developer’s profit to plummet 74 percent in the first quarter. Emaar accounted for about two- thirds of home sales and 57 percent of new leases in Dubai, TAIB Research said today in a note to investors.

Consulting “would be a nice adjunct to Emaar’s main business of developing and building up an investment portfolio,” said Chet Riley, a Dubai-based analyst at Nomura Holdings Inc.

Kingdom Tower is part of a project valued at 100 billion riyals ($26.6 billion). Emaar said today it was too early to estimate the income it will earn from the development. The U.A.E. stock market regulator had asked the company to provide more details on its agreement with Kingdom Holding. Emaar owns a stake in Jeddah-based Emaar Economic City.

‘Under Pressure’

“I don’t know if they would have previously considered consultancy or projects of this nature,” said Bobby Sarkar, an analyst at Al Mal Capital PSC in Dubai. “But now they are, because their business model is coming under pressure in Dubai given the fact you have no mortgages and no off-plan investors.”

The vacancy rate in Dubai’s residential market may double to about a third by the end of 2010 as the population declines and new buildings add to a glut of homes, UBS AG said. By contrast Saudi Arabia, the world’s largest oil exporter, will have a shortage of about 2 million homes as the population is set to rise by a third to 33 million in the next decade, CB Richard Ellis Group Inc. said in a report yesterday.

The Saudi population tripled in the last 30 years to around 25 million and a growth rate of 2 percent a year will probably continue because almost half the population is younger than 20 years old, HSBC Holdings Plc said last month.

Dubai’s expatriate population, which accounts for most of the sheikhdom’s inhabitants, may drop 8 percent this year and another 2 percent in 2010, according to UBS estimates in March. Expatriates fired by companies trying to weather the global recession are being forced to leave the country because of visa restrictions.

Emaar “just had to take this opportunity which is strong on the marketing side to position themselves as the developer for mega-projects,” said Ahmed Badr, an analyst at Credit Suisse Group AG in Dubai with a “neutral” rating on the stock.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net; Glen Carey in Riyadh at gcarey8@bloomberg.net.

Last Updated: June 16, 2009 09:11 EDT