Saudi construction sector to rebound as Giga projects pick up pace

Photo by ekrem osmanoglu on Unsplash
Eltrak - Cat banner ad

Saudi Arabia’s construction sector has shown signs of recovery in the third quarter of 2022 as became evident following the rise in local cement sales volumes, an analysis report by Riyadh-based financial services firm Al Rajhi Capital showed.

The Kingdom’s sales of local cement increased by 5.4 percent year-on-year between July-November 2022 period while the consistent offtake of new residential loans, along with the softening of construction material prices, aided the recovery of the construction sector, the report added.

Stonetech banner ad
Stonetech banner ad

It noted that Saudi Arabia continued to record strong growth in residential mortgages with the new deals averaging SR10.7 billion ($2.84 billion) per month for the period Jan-Oct 2022.

“Going forward, we expect the strong offtake in mortgages to continue, as we expect the new mortgage to average SR7 billion per month in 2023, with the overall residential mortgage growing at a CAGR of 12 percent between 2022 and 2024,” the analysts said in the report.

As Saudi Arabia is expected to accelerate execution of its mega and giga projects, the Al Rajhi Capital analysts said this in turn is likely to aid in the recovery of the construction segment.

The positive outlook comes as the Kingdom earlier this month announced a bumper budget, with a promise to continue with strong government spending for various sectors.

Al Rajhi’s report which analyzed the performance of Saudi firm Bawan said the recovery in the construction segment will aid the performance of the building material manufacturing company as 70 percent of its revenue comes from this segment.

“We expect steel prices to soften in 2023, though we do not expect the same to have a major impact on the financials of the company, since the company maintains less than a month of steel inventory, and any changes in the prices are transferred to the end-user,” the report noted.

However, it added that the scenario of increasing global interest rates is likely to impact the company’s cost of borrowing and the resultant cost of capital.

The recovery in the construction segment is also likely to aid Saudi Ceramics positively, the report noted, as adverse commodity prices, which were having a negative impact on the company’s heater segment, are expected to ease.

“The company’s strong market position will also aid its performance, though the recent trend of increasing competition is likely to limit the upside. Also, the scenario of increasing interest rate is likely to keep the interest cost of the company high,” the report added.