Gulf Construction Online - Building activity set for growth despite costs

Saudi Focus

Building activity set for growth despite costs

01 March 2022

Saudi Arabia is expected to witness strong levels of activity in the construction sector over the year despite mounting concerns around the cost of materials, shortages of labour needed to deliver schemes and the financial options available to developers, according to the latest RICS construction monitor for the final quarter of 2021.

In terms of workloads for Q4 2021, RICS said over 60 per cent of respondents continued to see increases in demand for construction work.

Infrastructure works are seen to be the main reason for the increase in workloads, with a net balance of +82 per cent of respondents citing a rise – likely driven by Vision 2030.

Elsewhere, private non-residential developments continued to show growing momentum with a net balance of +55 per cent of respondents reporting growth in this area.

Painting a positive picture for the industry, construction experts said infrastructure works are likely to lead the sector (by a net balance of +85 per cent), with private housing and non-residential works closely following with both anticipated to also deliver strong growth in output (+59 per cent and +62 per cent, respectively).

Coupled with this positive outlook, more respondents reported a rise in both new business enquiries (up by a net balance of +66 per cent) and profit margins (+26 per cent), suggesting profits and enquiries are expected to match the increased workloads, stated RICS in its report.

Concerns reported by respondents focused on the lack of financing available to make schemes viable (70 per cent) and a shortage of skilled professionals to carry out the work (76 per cent) as the biggest factors that are now holding back the construction sector in Saudi Arabia. Cost of materials (64 per cent) is also a contributing factor to future construction success.

Looking ahead, construction costs are expected to grow by 7.63 per cent over the year – the largest increase faced by developers when compared with other costs such as other material costs (7.56 per cent) or paying for skilled labour (6.34 per cent).

RICS Economist Tarrant Parsons said: “Sentiment continues to improve across the Middle Eastern construction industry in aggregate, evidenced by the headline Construction Activity Index (CAI) rising for a fifth successive quarter. Saudi Arabia is the standout, continuing to record the strongest CAI reading of all countries surveyed globally, with respondents attributing this to the government’s development plans for the Saudi Vision 2030.”