Attention shifted to construction contracts in the real estate sector this year after the Saudi authorities pushed ahead to meet their ambitious target of providing 500,000 affordable housing units to Saudis.
Real estate contracts accounted for 39% of all new construction deals in Saudi Arabia in the second quarter – a very high figure compared to previous quarter.
"Furthermore, the real estate sector accounted for 30% of the value of awarded contracts during the first half of 2013," said NCB Capital in its latest report on construction activity in the kingdom.
The recent rush in real estate activity is also driven by a new royal decree that allows the Ministry of Housing to grant developed lands and interest-free home loans to Saudi nationals.
During the quarter, the ministry awarded at least five contracts as it worked its way through its target of 500,000 affordable housing units. All the projects commissioned in the quarter are set to be completed by 2015 as the ministry pushes the construction industry hard.
Some of the key real estate projects in September included a SAR 13 billion contract awarded by the Ministry of Finance to Saudi Binladen Group to build the Abraj Kudai mixed-use real estate development.
The Saudi construction activity has been on the boil for the past few years, as SAR 270.3 billion ($72 billion) worth of contracts were awarded in 2011 and another SAR 235 billion ($62.7 billion) last year.
Construction companies need to digest the staggering $134.7 billion worth of construction activities before they can start bidding on new projects.
On the other hand, the country's non-oil economy has risen 4.5% this year as business sentiment remains high.
"Very high government spending remains the main stimulus to the real economy," said Fahad Al Turki, economist at Jadwa Investment Bank. "Also, we expect oil revenues to remain sufficiently high to maintain and support business and investor confidence. We believe that progress on awarding contracts and project implementation has been stepped up compared to last year."
The construction sector itself has risen 6.6% in the first half of the year, which is a particularly strong signal as it comes on the back of two solid years.
Cement production has also risen 8% this year, as Saudi Arabia addressed a key material bottleneck to ensure construction activity does not subside.
Overall, some estimates show Saudi Arabia could see construction awards of as much as $70 billion by the end of the year.
alifarabia
2 October
