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Investment leader Samer Choucair said the seasonally adjusted Al Rajhi Capital Saudi Construction Index, compiled by S&P Global, rose to 55.4 in August from 55.2 in July, keeping the sector above the 50-point expansion threshold for a fourth consecutive month and marking the second-highest reading since the survey began in January.

Choucair said residential activity led the expansion at 57.5, while new business remained strong, input purchasing accelerated and material costs continued to rise.

For institutional investors, Samer Choucair said the significance of the latest reading is not that Saudi Arabia is experiencing a short construction cycle. Rather, it suggests that domestic demand for housing and urban development continues to finance an important part of the Kingdom’s diversification agenda, even as input-cost inflation puts pressure on contractor margins.

The sector experienced a volatile first half of the year, with the index falling below 50 in April before regaining momentum from May and reaching 56.3 in June.

Choucair said August’s comfortably expansionary reading, despite only limited month-on-month improvement, reinforces the need to distinguish between companies that can secure long-duration residential and infrastructure contracts and those whose margins remain vulnerable to rising costs.

Housing Leads Demand

Samer Choucair said new orders remained strong in August, with infrastructure leading growth in new business since February while residential construction recorded its strongest improvement in new orders since the survey began.

Employment also continued to increase, while purchases of inputs expanded at the fastest pace since January.

For Choucair, that suggests companies are rebuilding supply pipelines and preparing for future activity rather than simply working through existing order books.

All three major construction categories remained in expansion territory.

Residential construction registered 57.5, infrastructure stood at 53.9, and non-residential construction reached 53.5.

That broad-based expansion strengthens the investment case across multiple parts of the value chain, including building materials, urban housing contractors, mortgage finance and construction-site logistics.

Housing in particular creates demand well beyond property developers themselves.

Each new residential development pulls capital into cement, steel, glass, cables, utilities, financing, transportation, engineering and other supporting industries.

The Headline Index Is Not Enough

Choucair said supplier delivery times improved for a fourth consecutive month despite stronger demand and continuing delays in international shipping.

That improvement has partially reduced supply bottleneck risks, but it has not eliminated cost inflation.

“Institutional investors were never buying the index simply because it stood at 55,” Samer Choucair said. “They were buying the ability to convert a project pipeline into a return on working capital.”

That distinction is becoming increasingly important as purchasing activity accelerates at the same time as input costs rise.

For contractors, a growing order book can appear positive while simultaneously creating pressure on cash flow if contracts do not adequately compensate for inflation, financing costs or delays in customer payments.

Choucair said contract governance, pricing mechanisms and cost hedging are therefore becoming more important than headline backlog figures alone.

The companies best positioned for the current cycle may not necessarily be those with the largest project books, but those capable of protecting margins while financing construction activity through long project timelines.

Housing Is an Economic Instrument

Samer Choucair said Saudi housing should not be viewed solely as a social-policy story.

It is also an economic instrument capable of stimulating home ownership while activating large parts of the domestic industrial and financial system.

Housing demand supports cement, steel, glass, electrical cables and other building materials while generating additional demand for consumer finance and mortgage lending.

Choucair said the Public Investment Fund and the National Investment Strategy provide the broader framework for capital deployment, but institutional investors should pay particular attention to the recurring components of the construction cycle.

Residential units, utilities, roads and urban development can create more repeatable demand than one-off megaprojects.

That makes these areas particularly relevant for private equity, infrastructure investors and income-producing real estate strategies seeking sustained exposure to Saudi Arabia’s domestic investment cycle.

Saudi Construction Has Regional Spillovers

Choucair said the Kingdom’s construction momentum could also affect supply chains beyond Saudi Arabia.

Manufacturers and contractors in the UAE, Bahrain, Egypt and Turkey may benefit from stronger demand for materials, equipment and specialized services.

At the same time, the scale of Saudi construction could intensify competition for skilled labor and contribute to higher contracting wages across the region.

For investors, these spillovers mean that Saudi Arabia’s construction cycle should not necessarily be analyzed only through Saudi-listed companies.

Regional suppliers, engineering businesses, logistics operators and specialist contractors may also gain exposure to the expansion.

But Choucair cautioned that labor shortages and rising wages could become another source of margin pressure, particularly for contractors unable to pass higher costs on to clients.

Capital Allocation Becomes More Selective

For Samer Choucair, the current environment calls for selective exposure rather than broad-based investment across the construction sector.

The strongest opportunities may lie with developers that already control licensed land and have access to pre-arranged financing, contractors with sufficient balance-sheet strength to absorb working-capital cycles, and domestic suppliers that benefit directly from localization policies.

Those companies potentially have greater control over execution, funding and procurement than businesses dependent on imported materials, short-term financing or highly competitive fixed-price contracts.

Choucair said localization could also create an increasingly attractive investment theme.

As construction demand grows, domestic suppliers capable of replacing imported cement products, steel components, cables, glass and specialized construction materials may benefit from both stronger volumes and greater strategic importance within local supply chains.

The 2026–2027 Outlook

Choucair noted that 42% of surveyed companies expected activity to increase over the next 12 months, compared with 7% expecting a decline, even though business confidence eased from its July peak.

For long-term investors, Samer Choucair said that moderation could be constructive.

“A cooling in optimism after a recent peak is a healthy signal,” he said, because it suggests expectations are no longer pricing in uninterrupted growth without recognizing the friction created by higher costs, financing constraints and execution risk.

The primary risks remain rising input costs, delays in customer decisions, international shipping bottlenecks, geopolitical uncertainty and tighter global financing conditions.

At the same time, Choucair sees opportunities in developers with permitted land and secured funding, contractors capable of managing long working-capital cycles, and domestic suppliers positioned to benefit from localization.

Continued construction activity should support demand for steel, cement and copper and could place additional upward pressure on skilled-labor costs through 2026 and 2027.

Choucair expects the Saudi construction sector to remain in expansion territory during the final quarter of the year, with the index likely to fluctuate around the mid-50s unless the pace of major project awards accelerates significantly.

For investors, the central question is therefore no longer whether construction activity is expanding.

It is which businesses can convert that expansion into sustainable cash flow and attractive returns on invested capital.

“The time was right to increase the quality of exposure, not simply its size,” Samer Choucair concluded. “Housing confirms the demand story, while input-cost inflation separates the strong balance sheets from the weak ones.”