The Construction Market in Saudi Arabia: Sector Dynamics and Performance

The term construction market refers to the financial sector specialized in companies engaged in the development and construction of real estate and construction projects within Saudi Arabia. This includes real estate development companies, major contracting firms, infrastructure project management companies, and the building materials sector. This sector is not limited to residential units but also includes commercial, industrial, tourism projects, and public facilities such as roads, bridges, and service establishments. The dynamics of the construction market are closely linked to government development initiatives, such as housing programs (Sakani) and mega projects under Vision 2030 (NEOM, the Red Sea, Qiddiya). The construction market is also one of the pillars of the non-oil economy and is influenced by financial policies, changes in interest rates, inflation, and GDP developments. The performance of this market is measured through specialized financial indicators such as the Real Estate Development Management Index (TRMI), which allows tracking the performance of real estate company groups and understanding the economic trends associated with the sector.

The Saudi construction market consists of a diverse range of companies and activities. The main players can be classified into:
1. Real estate development companies: such as Dar Al Arkan, Emaar Saudi Arabia, and Jabal Omar, which are responsible for planning and developing residential neighborhoods and commercial complexes.
2. General contracting companies: responsible for executing major infrastructure projects (roads, bridges, airports).
3. Building materials companies: such as cement and steel companies that supply the market with essential raw materials.
4. Real estate financing companies: providing financial solutions for individuals and companies to purchase or develop property.
5. Facility management and maintenance companies: ensuring the sustainability of operations after completion.
Each of these elements is subject to regulations and controls by the Capital Market Authority and plays a pivotal role in the economic integration of the sector. The contribution ratios of these companies to the GDP vary, and their strategies differ based on the nature of targeted projects and geographical markets.

The Real Estate Development Management Index (TRMI) is used as a key indicator to monitor and measure the performance of real estate development companies in the Saudi market. This index aggregates the performance of a group of companies listed within the construction sector and analyzes their price movements, trading volumes, and quarterly changes. The TRMI index reached approximately 3,001.78 points at the end of 2024, reflecting significant growth compared to previous periods. The index is useful in measuring general trends, the sector's resilience to economic shocks, and forecasting growth opportunities and challenges. Analysts and investors often use the TRMI to track the impacts of government initiatives, developments in interest rates, or changes in real estate policies on the market as a whole. It is always recommended to refer to official sources such as the Tadawul website or specialized financial data platforms for regular monitoring of the index.

The Saudi construction market plays a pivotal role in achieving the goals of Vision 2030, which aims to diversify the economy and reduce dependence on oil. The vision focuses on massive housing projects, the development of smart cities (NEOM), leading tourist destinations (the Red Sea), and the expansion of entertainment areas (Qiddiya). Through these initiatives, significant capital is injected into the sector, creating vast job opportunities and increasing demand for contractors and developers. The vision also aims to raise the homeownership rate among Saudis to 70% by 2030, enhancing the need for new housing units and expanding infrastructure. The impact of the vision on the construction market is evident in the rising volume of projects, increased delivery rates of units, and the stimulation of local and foreign investments in the sector.

The Saudi construction market is subject to a complex interplay of economic and financial factors, the most prominent of which include:
- Interest rates: As interest rates decrease, demand for real estate financing increases, and when they rise, purchasing activity slows down.
- Inflation and building material prices: Rising prices of cement and steel affect project costs and profit margins.
- Government policies: Housing programs and tax exemptions significantly boost demand.
- Population growth and urbanization: Generate sustainable demand for housing units and facilities.
- Oil prices: Given the Saudi economy's dependence on oil, fluctuations impact the volume of government spending on infrastructure projects.
These factors interact to determine the growth rate of the sector and its short- and long-term prospects.

The performance of the Saudi construction market during 2024 and 2025 witnessed notable growth in trading volume, sales, and profits, driven by liquidity inflows and the expansion of government and private projects. For instance, the TRMI index increased by about 0.37% in one of the main sessions, and the results of major companies such as Dar Al Arkan reflected revenue growth exceeding 50–100% year-on-year during some quarters. Profit margins also improved due to increased real estate sales, especially with the completion of major projects and the delivery of new units. There was also a noticeable rise in the volume of real estate loans granted by banks, exceeding 5% of total bank loans, indicating strong housing demand. Despite some challenges (rising costs, fluctuating material prices), the sector maintained its investment attractiveness due to government support and ongoing financing initiatives.

The construction market includes several major companies that lead real estate and construction activities in the Kingdom, including:
- Dar Al Arkan (1111): The largest real estate developer in Saudi Arabia, known for its massive projects in Riyadh and Jeddah.
- Emaar Saudi Arabia: A subsidiary of Emaar Properties, specializing in projects in Mecca and the central region.
- Jabal Omar: Focused on developing the central area around the Grand Mosque in Mecca.
- Mecca Construction and Development: One of the oldest contracting and development companies.
- Amlak International: A leader in real estate financing and project development.
- Other companies such as Saudi Real Estate, Arab Contracting, Tourism Real Estate Development, and others.
These companies compete for government and private project contracts and adopt varied growth strategies based on geographical location and project type.

The construction sector contributes about 5–7% of the Kingdom's GDP and is one of the largest non-oil sectors. The market is characterized by substantial invested capital, with the combined market value of major real estate companies estimated in the tens of billions of riyals. The sector also provides direct and indirect job opportunities for thousands of engineers, technicians, and skilled labor. The market's position has strengthened in recent years due to Vision 2030 projects, with an increased number of projects under development and a rising pace of housing unit deliveries. This reflects the sustained demand for housing, commerce, and tourism, making the construction sector one of the pillars of the modern Saudi economy.

The main opportunities in the market are reflected in direct government support, growing demand for housing, openness to foreign investments, and mega development projects. Programs like Sakani and increased localization of labor open new horizons for companies. Conversely, the sector faces challenges such as fluctuating raw material prices, risks of real estate oversupply in certain areas, delays in regulatory procedures, and risks associated with external financing. Additionally, changes in tax policies and fees may temporarily affect profit margins. Balancing the exploitation of opportunities with risk management requires companies to integrate financial planning with adopting innovative solutions to control costs and enhance operational efficiency.

Recent years have seen several significant developments in the Saudi construction market:
- Continued tendering for new projects in NEOM, the Red Sea, and Qiddiya, supported by the Public Investment Fund.
- Growth in revenues and profits of major companies such as Dar Al Arkan and Emaar Saudi Arabia, driven by increased government and private real estate sales.
- Issuance of incentive decisions by the Capital Market Authority (registration of new REITs, easing digital licensing).
- Fluctuations in building material prices, with relative stability in residential property prices.
- Launch of initiatives to stimulate real estate financing and simplify bureaucratic procedures.
These developments reflect the vitality of the sector and its readiness to keep pace with economic and social transformations in the Kingdom.

Financial observers and investors focus on several key indicators to measure the performance of real estate companies:
- Market price of the stock and price-to-earnings ratio (P/E): to assess the attractiveness of the stock relative to earnings.
- Annual dividend yield: a measure of the attractiveness of cash distributions.
- Revenue growth and net profits: an indicator of operational efficiency.
- Trading volume and liquidity: reflecting market interest.
- TRMI index: a tool for measuring the overall trend of the sector.
Accurate financial data is available through the Tadawul website and company reports, providing a comprehensive view of the sector's development and its ability to maintain sustainable growth.

The construction market has a close relationship with the real estate financing sector, as most purchasing and development operations rely on bank financing solutions or government facilities. In recent years, there has been growth in the volume of real estate loans, especially as banks have moved towards offering competitive financing offers and a relative decline in interest rates. This growth in financing enhances individuals' ability to purchase homes and supports sales of real estate development companies. Additionally, programs like Sakani contribute to increasing the homeownership rate among citizens and providing additional liquidity to the market. The main challenge lies in the potential impact of rising interest rates or changes in financing terms on demand, necessitating regular monitoring of bank policies and market movements.

Government policies and legislation play a crucial role in shaping the construction market. The Capital Market Authority recently issued a package of regulations to enhance transparency, such as encouraging the listing of REITs and simplifying digital building licensing procedures, which has reduced bureaucratic hurdles. Initiatives have also been launched to enable Islamic financing and attract foreign investments while maintaining regulatory controls. Changes in white land fees and municipal taxes periodically affect companies' profitability, while incentives directed at real estate developers remain one of the key factors driving the sector forward.

Most specialized reports indicate continued expansion in the construction market during 2025, with new phases of major state projects being completed and rising housing demand due to population growth. Competition among major companies is expected to remain strong, with increased focus on sustainability and innovation in new projects. The main challenge may lie in managing financing costs and fluctuating raw material prices, but government support and financing incentives are likely to enhance sector stability. The sector remains promising for sustainable growth, with the importance of continuous monitoring of economic and legislative changes.