RIYADH: Major Saudi Arabian real estate developer Dar Al Arkan launched on Monday the second phase of a 10 billion riyal ($2.7 billion) project in Riyadh that features villas with interior designs by Italian fashion house Roberto Cavalli.

The Shams Al Riyadh project, one of the firm's major mixed-use developments in the capital, points to a revival in the kingdom's real estate sector which was hit hard in recent years as low oil prices squeezed state spending on new projects and pushed the government to delay payments to contractors.

The project, extending over five million square metres, includes a residential complex for employees of SABIC, one of the world's largest petrochemical companies.

Investments in the second phase will total 600 million riyals, and will be self-financed by the company and off-plan sales, Chairman Yousef al-Shelash told Reuters.

"So far we invested 2 billion riyals in this project which will be launched in five phases. Total investments in the project will exceed 10 billion riyals in the next couple of years," he added.

The second phase will be completed in five years, and the firm would launch the third phase this year, CEO Ziad El Chaar said.

This month, Dar Al Arkan announced first quarter net profits of 331.1 million riyals versus 12.1 million a year ago as it implemented a new strategy to diversify income sources.

Shelash said the economic slowdown in the kingdom had caused the company's margins to fall to about 18 percent over the last two to three years, from 45 percent.

But he said the Saudi real estate market would be one of the best sectors to invest in over the next five years as the kingdom's young population fuels demand.

The government wants to increase activity in the real estate market to revitalise the economy. It is taking steps to reform the sector as part of its 2030 strategic plan.

(Reporting by Marwa Rashad Editing by Ghaida Ghantous and Edmund Blair) ((marwa.rashad@thomsonreuters.com; +966114632603 ; Reuters Messaging: marwa.rashad.thomsonreuters.com@reuters.net))