meed-logo

line1 line2 line3
SIGN IN / REGISTER

Interest rates dampen Saudi construction

3 November 2023

Rising interest rates have curbed the Saudi mortgage market, which is negatively impacting the real estate market and the construction sector, even though the impact of rising rates has been offset by a sharp increase in contract awards for the kingdom’s gigaprojects and other major developments.

A report in late October by London-based Capital Economics said the drop in the number of new mortgages is affecting the property market.

The report cited data published in October that showed that the overall real estate price index rose by 0.2 per cent during the third quarter. The data also showed that villa prices fell by 0.2 per cent and are now 25 per cent below their 2015 peak.

Capital Economics said the value of new mortgages provided by banks contracted by 44 per cent year-on-year in August, adding that higher interest rates – the Saudi Central Bank has raised rates by 500 basis points since early 2022 – explain this trend.

Capital Economics is the latest firm to publish a report highlighting the impact of interest rates on the real estate market.

In May, property consultancy Knight Frank reported that there has been a significant decrease in residential property activity across Saudi Arabia.

It said the number of residential transactions decreased by 57 per cent in Riyadh and 67 per cent in Jeddah at the end of the first quarter. The firm said the contraction appears to result from shifting affordability circumstances and evolving market dynamics.

The weakness in the housing market is impacting the construction sector. According to Alrajhi Capital, cement volumes declined by 11.2 per cent in August this year, in line with the continuing mortgage decline.

For non-cement companies, Alrajhi Capital expects the pressure on financial performance to continue owing to weak demand and pricing pressure. It forecasts that companies under its coverage will report an 11.6 per cent year-on-year drop in revenues.

The impact of rising interest rates has been offset by a sharp increase in construction activity on Saudi Arabia’s five official gigaprojects and other major development schemes backed by the Public Investment Fund (PIF).

According to MEED’s gigaprojects tracker, Saudi Arabia’s five official gigaprojects have awarded $45bn of construction contracts since they were launched. 

The $45bn total for the five gigaprojects represents about 16 per cent of the $290bn of contract awards made across all clients and sectors in Saudi Arabia since the initial gigaproject contracts were awarded in May 2017.

Gigaproject developers say they are planning their projects to be resilient to deal with economic shocks such as rising interest rates.

“I’m of the generation that remembers double-digit interest rates, so I think it is cheap at the moment,” said David Grover, CEO of gigaproject developer Roshn, while speaking on a panel at the Future Investment Initiative (FII) in Riyadh on 25 October.

“The world has had the luxury of 0-2 per cent interest rates for a long time. It is not sustainable. I think we need to be conscious of that, but also, when we do our masterplans, we need to be able to speed up and slow down based on the market.”

Register for MEED's guest programme 

*=Year-to-date | Sources: IMF, MEED Projects, MEED

MEED's October 2023 special report on Saudi Arabia includes: 

> COMMENT: Riyadh reshapes its global role
> POLITICS: Saudi Arabia looks both east and west
> SPORT: Saudi Arabia’s football vision goes global
> ECONOMY: Riyadh prioritises stability over headline growth
> BANKS: Saudi banks track more modest growth path
> UPSTREAM: Aramco focuses on upstream capacity building
> DOWNSTREAM: Saudi chemical and downstream projects in motion
> POWER: Riyadh rides power projects surge
> WATER: Saudi water projects momentum holds steady
> GIGAPROJECTS: Gigaproject activity enters full swing
> TRANSPORT: Infrastructure projects support Riyadh’s logistics ambitions
> JEDDAH TOWER: Jeddah developer restarts world’s tallest tower

 

 

https://image.digitalinsightresearch.in/uploads/NewsArticle/11268831/main.gif
Colin Foreman

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Kuwait refinery project on track for year-end completion

    23 September 2026

     

    A $65m project to replace a substation at the Mina Al-Ahmadi (MAA) refinery is on schedule to be mechanically complete before the end of the year, according to industry sources.

    The project is being executed by India’s Larsen & Toubro (L&T), which was awarded the contract in October 2024.

    One source said: “This project is approaching completion and is currently on schedule to be completed before the end of the year, although it could still see delays related to the ongoing regional conflict.”

    The client is state-owned downstream operator Kuwait National Petroleum Company (KNPC).

    Kuwait’s Ministry of Electricity, Water & Renewable Energy (MEW) is also involved in the project and will provide final approvals and sign-off.

    The scope of the project includes:

    • Construction of a substation
    • Installation of transformers
    • Installation of medium-voltage switchgear
    • Installation of low-voltage auxiliary systems
    • Installation of network protection systems
    • Installation of disconnecting switches
    • Installation of surge arrestors
    • Installation of feeder breakers and cubicles
    • Installation of low-voltage A/C and D/C equipment
    • Installation of battery banks and battery chargers
    • Installation of related relay and control panel boards
    • Installation of fire alarm and fire protection equipment
    • Installation of a SCADA system
    • Installation of cables
    • Civil works
    • Associated facilities

    The current project to replace a substation at the MAA refinery closely resembles another project tendered by KNPC more than a decade ago, which L&T also won.

    On 18 May 2015, KNPC signed a contract with L&T to build a new 240MW substation at the MAA refinery, valued at KD21.866m.

    The new substation, known as M20, was designed to replace an existing substation that was considered old and obsolete.

    Mohammed Al-Mutairi, who was KNPC’s chief executive at the time, said the substation building would be explosion-proof and use state-of-the-art control systems.

    He said the station’s capacity would increase from 180MW to 240MW, supplying most of the refinery’s electricity needs.

    Given the similarities between the two projects, L&T has been able to reuse some designs, creating efficiencies, according to industry sources.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19911319/main.jpg
    Wil Crisp
  • UAE to develop integrated waste-to-resource pilot

    23 September 2026

    Emirates Biotech and United Arab Emirates University (UAEU) have launched a pilot project in Al-Ain that could provide a model for larger waste-to-resource facilities.

    The project involves developing the UAE’s first integrated organic-waste valorisation pilot plant, which will test whether food waste and compostable packaging can be processed together to recover resources and reduce waste sent to landfill.

    Located near the UAEU campus, the 40kg-a-day facility will process organic waste to produce renewable biogas and nutrient-rich compost. The project is intended to generate technical and operating data that could support the development of larger-scale facilities.

    Emirates Biotech and UAEU will design, build and operate the pilot plant as part of a two-year research project running from August 2026 to August 2028. Installation and commissioning are expected to be completed by August 2027.

    The plant will combine anaerobic digestion and composting. Anaerobic digestion will convert the organic waste into renewable biogas, while the resulting digestate will be composted to produce nutrient-rich compost.

    A laboratory-scale assessment will also examine the potential to convert the biogas into renewable hydrogen.

    Food waste accounts for nearly 40% of daily municipal solid waste in the UAE, according to Emirates Biotech, and much of it is currently disposed of in landfills.

    The pilot will therefore assess the technical and operational feasibility of recovering value from two waste streams through a single integrated process.

    If successfully scaled, Emirates Biotech says an integrated organic-waste valorisation plant could reduce CO₂ emissions by 89% compared with landfilling.

    The project is expected to provide a scalable and modular model for converting food waste and compostable packaging into renewable biogas and compost, with the findings intended to inform the development of larger waste-to-resource facilities.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19908972/main.jpg
    Mark Dowdall
  • Contractors prepare Oxagon Highway 55 bids

    23 September 2026

     

    Contractors are preparing to submit bids on 28 September for a design-and-build contract for permanent upgrade works on Highway 55 in the kingdom’s Oxagon region.

    The first phase of the project includes constructing 14 kilometres of road, with two lanes in each direction. It also includes one bridge and three interchanges.

    The project duration is 22 months.

    Highway 55 connects the Red Sea coast with the mainland in northwestern Saudi Arabia. It is currently the only road providing north-south connectivity between Duba and the Neom region.

    MEED reported exclusively in August 2025 that contractors had submitted responses to an expression of interest notice that Neom had issued earlier that month.

    The project is expected to support cargo movement from Duba Port to other parts of the kingdom and the wider region.

    Last year, Neom tested a pilot initiative by handling a shipment that travelled from Cairo via the Port of Safaga, across the Red Sea to the Port of Neom, and then inland to Erbil, Iraq.

    In a statement, Neom said: “The shipment travelled through an intermodal corridor spanning over 900 kilometres, marking a significant milestone in the kingdom’s transformation into a regional and global logistics hub.”

    The Port of Neom is located on the Red Sea near the Arar border, a key entry point into Iraq.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19907876/main.jpg
    Yasir Iqbal
  • Lebanon sets October deadline for power generation projects

    23 September 2026

     

    Lebanon’s Electricity Regulatory Authority (ERA) has extended the deadline for private sector companies to submit expressions of interest (EoIs) for several upcoming power generation projects.

    The new deadline is 15 October. The original deadline was 30 September.

    The regulator said the extension follows “requests received from interested applicants for additional time to finalise and submit the required documentation”.

    The EoI covers up to five grid-connected solar photovoltaic projects with a combined installed capacity of 350 megawatts-peak. The projects are also expected to include battery energy storage systems with a combined capacity of 1,000 megawatt-hours. 

    The regulator is also seeking proposals for distributed dual-fired thermal power plants with net capacities ranging from 20MW to 100MW. The plants are expected to run on natural gas as the primary fuel and heavy fuel oil as a backup. 

    The ERA invited companies to submit EoIs at the beginning of August.

    On 11 August, the ERA issued its first set of clarifications following queries regarding the EoI. The clarifications confirmed that “proposed dual-fired plants should be gas-ready”, with natural-gas infrastructure planned but no implementation timeline yet available.

    The ERA also said key power purchase agreement (PPA) terms, including duration, tariff structure and indexation mechanisms, will be determined “during a future procurement process”.

    Electricity reforms

    The EoI comes as the government advances wider reforms to Lebanon’s electricity sector. On 4 September, the Higher Council for Privatisation and Partnership discussed steps to transform the state utility Electricite du Liban (EDL) into a company, including creating a new entity, transferring its assets, and taking measures to protect employees’ rights during the transition.

    The government said the restructuring aims to improve the financial sustainability of the electricity sector, recover costs and improve electricity supply. 

    On 18 September, the council discussed a draft decree to establish the new EDL company, evaluate its assets and separate its activities. However, it deferred a decision for further study.

    The ERA was established earlier this year, more than two decades after it was envisaged under Law No. 462/2002 but not implemented due to political delays. The Energy & Water Ministry and EDL previously oversaw the electricity sector.

    Lebanon’s electricity sector continues to face insufficient generation capacity, fuel supply constraints, ageing generation assets and limited grid flexibility. These challenges have led to prolonged electricity shortages and increased reliance on private diesel generation and distributed solar systems, prompting the government to seek additional private investment in new generation capacity. 

    According to the EoI document, the projects are expected to be structured as independent power producer (IPP) schemes. The competent public authority will determine any future contractual arrangements, including PPAs, under the applicable legal framework. 

    The ERA said the EoI is open to private investors, IPP operators, engineering, procurement and construction contractors, equipment suppliers and consortiums. It aims to assess market interest, identify potential generation projects, and evaluate the technical and financial capabilities of prospective developers. 

    Respondents must provide information on their technical and financial capabilities, proposed project locations, grid connection plans and relevant project experience. 

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19906210/main.jpg
    Mark Dowdall
  • Jedco maps next phase of Jeddah airport expansion

    22 September 2026

     

    Register for MEED’s 14-day trial access 

    Jeddah Airports Company (Jedco) has outlined plans for the next phase of expansion at King Abdulaziz International airport (KAIA) in Jeddah.

    The programme comprises six upcoming contractor packages spanning airside works, terminal upgrades and utilities as Jedco advances its long-term expansion plans.

    The opportunities include airfield rehabilitation; a five-year construction framework covering multiple workstreams and facility types; a Terminal 3A (T3A) package; Terminal 1 (T1) optimisation; a fuel farm; and Concourse C works.

    The packages cover terminal buildings and ancillary facilities, runways, taxiways and aprons, hangars, fuel systems, airside facilities, supporting infrastructure and utility networks.

    Tendering and award activity will be staggered over the next two years. Airfield rehabilitation is targeted for Q3 2026. The construction framework is scheduled for Q4 2026 and will run for five years.

    The T3A package is planned for Q1 2027 and will be delivered under an early contractor involvement contract. Local contractors are encouraged to bid as part of a joint venture with an experienced international partner.

    T1 optimisation is planned for Q4 2027, the fuel farm for Q2 2027, and Concourse C – currently the latest of the six milestones – for Q2 2028.

    The new packages add detail to Jedco’s wider expansion plans disclosed in 2023, when it was reported that the company would invest SR115bn ($31bn) to increase KAIA’s capacity to 114 million passengers a year, with an overall completion target of 2031.

    Jedco has recently awarded several significant contracts linked to the airport’s upgrade programme.

    In November 2024, a joint venture of local Algihaz Contracting and Turkey’s TAV was awarded a contract to rehabilitate the South Terminal to serve Umrah and Hajj pilgrims, with Singapore’s Surbana Jurong acting as consultant.

    Earlier that year, Jedco also awarded France’s Alstom a contract to increase the capacity of the Innovia automated people mover at Terminal 1, including new cars and upgrades to signalling, communications and controls.

    Surbana Jurong is expected to play a leading role in future KAIA expansion plans and is currently providing technical advisory and project management consultancy for more than 100 capital projects for Jedco, valued at over SR6bn ($1.6bn).

    These upgrades are expected to boost KAIA’s annual capacity in line with Saudi Arabia’s Vision 2030 and National Aviation Strategy, enhancing the experience for domestic travellers and millions of Hajj and Umrah pilgrims.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/19877992/main.jpg
    Yasir Iqbal