Saudi Arabia Construction Market Report - Feb. 2016

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-10th
March 2016 Source: www.venturesonsite.com as of January 2016 www.thebig5saudi.com
KSA Construction Market
February 2016

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Snapshot of Saudi Arabia’s (KSA) 2016 Budget
Currently grappling with the impact of low oil prices, KSA announced a 2016 budget comprising spending cuts,
subsidy overhauls, and taxation, in order to meet its financial targets. The 2016 budget anticipates that KSA will
spend US$ 224 billion and earn US$ 137 billion in revenues for a fiscal deficit of US$ 87 billion. Dwindling oil
prices in the international market have been impacting the state’s revenues whilst ongoing conflict in Yemen has
overburdened the economy on account of military expenditure. KSA will need US$ 4 trillion in public and private
investment up to 2030 to inoculate the economy from the oil price rout (McKinsey estimates). KSA’s finance
ministry has announced that it will review government projects to ensure they are necessary, affordable, and
efficient. The ministry in October 2015 had reportedly frozen investments into new projects as a precursor to
the recent budgetary announcement. The ministry will also adjust subsidies for water, electricity, and petroleum
products over the next few years. In addition, KSA’s other plans for 2016 include privatising a range of sectors
over the next five years. Sectors that will be negatively impacted include petrochemicals, transport and cement
sectors, which are heavily subsidised by the government. Sectors that will be positively impacted include utilities
and natural gas providers - but the impact on their bottom lines will include the extent to which the government
in turn cuts back subsidies for those companies.
The National Transformation Plan 2020
The National Transformation Plan 2020 will develop alternatives to oil and drastically cut the public payroll,
which acts as a form of unemployment benefit. There will be doubling of private education to cover 30% of
students, establishing charter schools and transforming public healthcare into an insurance-based system with
expanded private provision. In addition to Aramco, stakes in state assets from telecoms to power stations and
the national airline will be sold. The government plans will sell land to developers, such as the 4 million square
metres it owns around Mecca, the most expensive real estate in the world. In addition, KSA will develop Islamic
tourism to the holy sites in hopes to boost the 18 million annual visitors to 35-45 million in five years.
Outlook of the Construction Market
KSA's construction market remains competitive despite the slump in oil prices. KSA is pushing through with its
investment plans in the construction sector, particular in infrastructure, so that should mitigate any slowdown
felt in other sectors. The work on about 857 projects worth US$ 19.7 billion earmarked for the Jeddah region of
KSA over the past number of years is progressing well with some of them already completed. According to an
industry survey, the construction sector is forecast to have the highest average salary increase at 10%, which will
hopefully encourage more Saudi nationals to take on jobs in construction projects that are expected to get
underway in the Kingdom. Ongoing construction projects in the GCC are valued at several trillions of dollars and
one-quarter of these developments are located in KSA. All the development projects, including roads, sewage,
electricity and education projects will be completed on time and there will be no delay in their implementation.

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Overview of the Building and Infrastructure Contractor
Awards
The total construction contractor awards in KSA across the building,
infrastructure and energy sectors are estimated to decrease from US$ 60.6
billion in 2015 to US$ 55 billion in 2016 (refer Figure 1).
Figure 1: KSA Construction Contractor Awards, 2015-2016 (US$ Million)
Note: The values are as of 19th
January 2016. Source: Ventures ONSITE MENA Projects Database:
www.venturesonsite.com
The building sector is forecast to record the highest contractor awards worth
US$ 30.5 billion in 2016. KSA will need around three million new housing units
by 2025 to keep up with the rapid population growth, which is expected to hit
37 million over the next 10 years. Despite the slowing economy, a shortage of
homes available for KSA’s rapidly growing population means that there are
opportunities for developers. KSA has approved proposals for a 2.5% white
land tax, which will apply to undeveloped residential and
residential/commercial plots within urban boundaries. The law is intended to
stimulate further development to meet the demand for middle-income
housing in KSA. Lower land values will make development more financially
viable and therefore stimulate additional activity. Revenues from the tax will
allow the government to undertake additional housing projects. KSA’s retail
sector is booming as the government eases restrictions on foreign investment
and its young population keeps spending amid the fall in oil prices. New retail
57%
14%
28%
Buildings
Figure 2: Share of Construction
Project Value Split by Sector (%) As of
22nd
January 2016
Source: Ventures ONSITE MENA Projects Database:
www.venturesonsite.com
Infrastructure
Energy

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space in Riyadh, the country’s most-populous city, is projected to grow by about 45% in the next three years to
21.5 million square feet (JLL estimates). KSA government has launched a number of developmental projects
worth over US$ 58.3 million in the historic city of Badr. The major ones include a residential project for Saudi
nationals comprising 70 houses, the launch of the second and third phase of the Badr-Yanbu Road project,
buildings for the police department of Badr and a cultural centre. The surge in shopping mall construction has
renewed many foreign retailers’ interest. Few airports in the region are designed with strict budgets in mind, as
they are viewed as long-haul investments. Promoting aviation as an economic growth engine could be effective,
as KSA wants to increase non-oil revenues. According to JLL, the Jeddah hotel market is likely to remain
relatively stable in the near to medium term. Even though there is new supply of Jeddah hotels, there is strong
demand to absorb any new supply, as result of religious tourism and higher occupancies during school and
public holidays. Religious tourism will remain a growth sector in Jeddah and the Western region, and could
support new hospitality supply. While education and health budgets are down year on year, there are a number
of projects that are being funded from previous budget’s surpluses. This indicates that both these sectors will
continue to benefit from investment (according to Jadwa Investment).
The infrastructure sector is the only sector estimated to record an increase in contractor awards from US$ 5.37
billion in 2015 to US$ 10.95 billion in 2016. Investment in transport infrastructure is estimated to be US$
450 billion. This includes rail and metro infrastructure and bus transit development of about US$ 200 billion,
construction of highways, roads, and connecting infrastructure of about US$ 130 billion, and airport and seaport
infrastructure of about US$ 100 billion (McKinsey estimates). Railway infrastructure spending in KSA is growing
immensely due to high investment by the government. The main objective of the Saudi Railway Master Plan
2010 - 2040 (SRMP) is to have a conceptual framework in place for the long term development of a future
passenger and freight transport network for the Kingdom. In addition, to harmonise the KSA’s railway network
with other GCC countries, the Kingdom as a key GCC member may take the initiative to promote the
establishment of a GCC railway capacity centre. The scope of the planned Saudi rail projects and required
investment are massive and one-third of the GCC rail budget is allocated to upgrading existing lines and building
the new rail networks across the Kingdom before 2030.
Key projects in KSA to improve the safety, monitoring and quality of highway and bridge construction work are
in the advanced stage of development and on track for completion in 2017. KSA will build four new highways
linking Makkah and Jeddah, which will benefit 35 million people. The projects include the Makkah-Jeddah
Highway, the Old Makkah-Jeddah Road, the Breman-Hada Al-Sham-Makkah Road, and a road for cargo and
freight trucks that links the Second Ring Road in Jeddah and Hada-Al-Jamoum Roadway. Jeddah’s transport
department has completed about 38 major projects over the past five years including underpasses and flyovers,
while 23 projects are still under way. Saudi Aramco, the National Shipping Company of Saudi Arabia (Bahri),
Lamprell Energy and Hyundai Heavy Industries have signed a memorandum of understanding (MoU) for joint
collaboration on the establishment of a world-class maritime complex in KSA. Such an undertaking shows the
continued commitment to the development of the maritime sector and the opportunities it may offer.

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Major Building and Infrastructure Projects Expected to Start Construction in 2016
Project Name Client Est. Value
(US$ Million)
Wadi Al Asla in Jeddah Sumou Real Estate Company, Jeddah
Development and Urban Regeneration
Company (JDURC)
5,866
Military Medical City in Riyadh - Phase 1 Ministry of Defense and Aviation, Riyadh 3,800
Makkah Mass Rail Transit (MMRT) - Phase 1 (Line
B & C) - Contract 3
Makkah Mass Rail Transit Company 3,547
Thakher City in Mecca Thakher Real Estate Investment Co. 3,200
Makkah Mass Rail Transit (MMRT) - Phase 1 (Line
B & C) - Civil Works - Contract 1
Makkah Mass Rail Transit Company 2,653
King Khaled Medical City in Eastern Province King Fahad Specialist Hospital - Dammam,
Ministry of Health, Saudi Arabia
2,600
Riyadh Avenue Mixed Use Development in Al
Malqa
Shumool Real Estate, Al Fouzan Holding,
Mabanee Company, Kuwait,M.H.Alshaya Co.
1,730
Prince Sultan Civilisation Centre Prince Sultan Civilisation Centre Company ,Al
Fadhl Group
1,600
King Abdullah Medical City - Makkah King Abdullah Medical City, Makkah, Ministry of
Health, Saudi Arabia
1,400
Fadhili Residential Camp Saudi Aramco 1,300
Construction of Tabuk Madina Highway - Madina
Part
Ministry of Transport, Saudi Arabia 1,118
Obhur Creek Bridge Jeddah Municipality, Jeddah Metro Company
,Jeddah Development and Urban Regeneration
Company (JDURC)
1,000
Asir - Jizan New Road - Jizan Part Ministry of Transport, Saudi Arabia 956
Makkah Mass Rail Transit (MMRT) - Phase 1 (Line
B & C) - Civil Works - Contract 2
Makkah Mass Rail Transit Company 949
Completion of Jeddah Jizan Coastal Highway -
Mecca & Asir Part
Ministry of Transport, Saudi Arabia 881

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Qasim - Makkah Direct Highway - Qassim Part Ministry of Transport, Saudi Arabia 853
Ajyal Community of Excellence Project (ACEP) -
Phase 2
Saudi Aramco 824
Asir Jizan New Road - Asir Part Ministry of Transport, Saudi Arabia 794
King Faisal Specialist Hospital & Research Centre
(KFSH&RC) in Jeddah - Residential Compound
King Faisal Specialist Hospital and Research
Centre (KFSH&RC)
786
Second Ring Road - Riyadh Ministry of Transport, Saudi Arabia 784
Source: Ventures ONSITE MENA Projects Database: www.venturesonsite.com
Conclusion
Sustained diversification drives have produced robust results for KSA, with non-oil growth surpassing the oil
sector. The government is also opening up to providing more opportunities to the private sector in economic
development and projects through its National Transformation Plan 2020. Over the next 15 years, further large-
scale investments (increasingly from the private sector), is expected to translate into continued demand for
construction. The sectors to watch out for in 2016 and offer construction opportunities are hospitality (hotels),
retail, education, healthcare, residential, and transport infrastructure.