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Saudi billionaire Prince Alwaleed bin Talal chose Saudi Binladin Group to construct a building in Jeddah that will replace Dubai’s Burj Khalifa as the world’s tallest tower.

Kingdom Tower will be more than 1,000 meters (3,281 feet) high and cost 4.6 billion riyals ($1.2 billion) to build, Alwaleed’s investing company, Kingdom Holding Co., said in a statement today. Alwaleed announced the plan to build a skyscraper with homes, offices and a hotel three years ago. The property will be completed in about five years, he told reporters in Riyadh today.

The tower will be the centerpiece of a 100-billion-riyal development in Jeddah known as Kingdom City that was announced soon after the onset of the global credit crisis that roiled real-estate markets. Emaar Properties PJSC, the United Arab Emirates’ biggest real-estate developer, is managing the development. Emaar built the 828-meter Burj Khalifa.

Housing Shortage

The building’s construction isn’t likely to help alleviate Saudi Arabia’s growing housing shortage. The Arab world’s largest economy needs to build 900 homes a day over the next five years to meet the demands of a population that has quadrupled over the last 40 years to 28.7 million, Jones Lang LaSalle said March 27.

“Saudis, like a lot of Gulf residents, like to live in villas and individual homes; they don’t like to live in flats or big towers,” said Loic Pelichet, assistant vice president of research at National Bank of Kuwait’s NBK Capital unit. The tower’s construction “changes nothing on the housing demand front.”

Kingdom Tower will be built in the first phase of a 5.3 million-square-meter development that overlooks the Red Sea and Obhur Creek, the company said.

It’s a “prestige project” that Kingdom Holding has committed itself to building after presumably gaining investor interest, NBK’s Pelichet said. “Is there demand anywhere in the world for a 1,000 meter-high tower? I’m not sure.”

U.S. Architects

In October, Chicago-based Adrian Smith + Gordon Gill Architecture LLP was chosen to design the tower in Jeddah. Adrian Smith designed Burj Khalifa when he was working for Skidmore Owings & Merrill, Gulf News reported on Oct. 22.

Jeddah-based Saudi Binladin Group, Saudi Arabia’s largest construction firm, agreed to become a shareholder in Jeddah Economic Co., the project’s owner, with a stake of about 17 percent, according to today’s statement. Kingdom Holding and Abrar International Holding Co. each own a third of the stock, and Abdurrahman Sharbatly owns the remaining 17 percent.

Saudi Binladin Group, which expanded the holy mosque in Mecca and built large projects across the Middle East, is owned by the family of deceased al-Qaeda leader Osama bin Laden.

Kingdom Holding shares rose 1.9 percent to 8 riyals in Riyadh today, giving the company a market value of 29.6 billion riyals. Emaar gained 1.4 percent to 3 dirhams in Dubai.

(Adds reference to Burj Khalifa in first paragraph.)