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Middle East private investment bank to use property fund for development costs

The move by KSB Capital Group is regarded by property experts as one that will become increasingly popular as other sources of funding for property developments dry up.

KSB expects a rut in the local stock market and a drop in construction costs to encourage private and institutional investors to subscribe in the fund, said Ahmad bin-Saedan, a KSB executive in charge of business development.

'A lot of people who wanted to build over the past few years have had to delay their plans because of the rise in construction costs,' he said.

'The prices of villas that are now available for sale are too high because they were built at a time when costs were too high. Now the prices of building materials have declined but demand is still there,' he added.

KSB wants to use the cash from the new three-year fund to build 48 villas and develop land plots in a parcel in the capital Riyadh before selling them. The owner of the parcel will inject 40% of the total amount KSB seeks to raise, he said.

Subscription to the fund will be open to private and institutional investors from Gulf Arab countries between February 28 and March 11. Minimum subscription is set at 10,000 riyals.

The fund has been approved by the government's Capital Market Authority and if fully-subscribed, the new fund will be KSB's third to be devoted to real estate after it raised some 258 million riyals last year, about a quarter of which were from a private placement.

Cement and steel prices have fallen sharply over the past six months, a trend that may help cash strapped developers. Saudi steel firms have cut prices by around two thirds over the past six months after the government banned exports of both steel and scrap metal.