S&P Says Government Spending Is Keeping Gulf Construction Resilient as the Property Market Cools in 2026
Government spending and a large pipeline of megaprojects are keeping the construction sector across the Gulf resilient even as parts of the regional property market soften, S&P Global Ratings said in a recent industry update on Gulf homebuilders and developers. The rating agency said strong public infrastructure spending and continued megaproject activity were supporting construction across the region.
S&P pointed to sizeable project pipelines in the two largest markets, put at about 138 billion dollars in the United Arab Emirates and about 168 billion dollars in Saudi Arabia. At the same time it flagged a marked rise in building costs, with construction cost inflation of about 7 to 12 percent expected in the United Arab Emirates in 2026 and about 5 to 8 percent in Saudi Arabia, up sharply from around 2 percent in each market in 2025.
The agency also set out the risks it sees. It noted a softening in parts of the property market, with average monthly residential transactions in Dubai easing about 25 percent, from around 17,200 in the first two months of the year to about 12,900 between March and June, alongside the prospect of additional supply reaching the market by 2028 and margin pressure on contractors working under fixed price contracts. It also pointed to the sector’s heavy reliance on expatriate labour in some markets and to broader regional uncertainty as factors to watch.
Why it matters: Construction and real estate are central to the Gulf’s diversification programmes, and the health of the sector is a useful read on whether government spending is translating into activity on the ground. S&P’s assessment that public spending is insulating construction from a cooler property market is a constructive signal for the region, though the rise in building costs and the coming supply point to a more demanding environment for developers and contractors.
Outlook: The balance for the sector through the rest of 2026 will rest on whether government and megaproject spending holds up, how far building cost inflation runs, and how the property market absorbs new supply. Well capitalised developers tied to state backed projects look best placed, while those more exposed to the residential market and to fixed price contracts face a tighter margin outlook.
Sources: S&P Global Ratings.
