5 min
The GCC real estate industry has witnessed significant expansion over the years owing to the ambitious economic diversification agendas of the governments coupled with consistent investments from international and regional players. However, this growth has been accompanied by a complex set of challenges, highlighted in Alpen Capital’s maiden GCC Real Estate industry report, including dependence on public spending, higher financing costs and increasing climate-related risks which are impacting the operating environment.
Dependence on Public Spending and MEGA Projects
Large-scale, government-led developments continue to shape the GCC real estate landscape, spanning residential, commercial, retail and hospitality assets. While these projects have created landmark destinations and attracted global investment, they also leave the sector sensitive to changes in public spending.
With most GCC governments still fiscally dependent on hydrocarbons, fluctuations in oil prices can influence public investment capacity. During periods of weaker oil revenues, projects may be delayed or re-phased, affecting construction activity and investor confidence. This sensitivity was evident in the nearly 39% year-on-year decline in GCC contract awards during the first five months of 2025.
Saudi Arabia provides the clearest illustration of the scale of government-backed development. Knight Frank estimates the real estate and infrastructure projects linked to the Kingdom’s transformation agenda to be worth around US$ 1.3 trillion, spanning NEOM, the Red Sea developments, Qiddiya, Diriyah and other master plans. Contract awards for Saudi giga-projects reached approximately US$ 196 billion in 2025, up 20% from 2024.
The UAE presents a more diversified funding landscape, although public investment remains crucial. JLL estimated the UAE projects market at around US$590 billion as of Q1 2024, with residential projects accounting for US$125 billion and mixed-use schemes for USD232 billion of the pipeline, which include large master-planned communities and tourism-anchored real estate projects.
Across the other GCC markets, government spending remains equally significant. Public expenditure accounted for approximately 84.3% of Oman’s construction market in 2024, while Kuwait’s project awards rose 44% in 2024 to around US$ 6.5 billion. Qatar’s construction cycle was strongly supported by public infrastructure investment, while Bahrain continues to use government-led and public-private initiatives to support housing development.
Market Saturation and Supply-Demand Imbalances
The GCC witnessed a notable increase in new supply in 2025, while demand continues to depend on employment growth, population expansion and household formation. This is creating selective supply-demand imbalances across markets and asset classes.
In Saudi Arabia, real estate inflation has eased to 1.3%, while the introduction of a five-year rent freeze in Riyadh reflects growing affordability pressures. At the same time, giga-projects and housing programmes continue to add substantial future inventory, making absorption a key consideration for developers. The market is projected to maintain its growth momentum, but this trajectory is unfolding alongside rapid development and shifting fundamentals, underscoring the importance of closely tracking the balance between new supply and end-user demand.
The UAE continues to experience strong demand in Dubai and Abu Dhabi, particularly in prime locations. However, the high volume of off-plan launches has raised concerns about potential medium-term oversupply if project deliveries outpace population growth. Record levels of project launches in Dubai have also prompted caution regarding the 2025–2026 supply pipeline, with the possibility that upcoming completions could exceed household formation. Meanwhile, Qatar continues to face residual residential and commercial inventory following the World Cup construction cycle, while Bahrain has excess office and apartment stock and Oman is experiencing muted demand for newly developed commercial units. Kuwait, by contrast, continues to face a structural shortage of citizen housing.
Cost of Capital
Higher financing costs are adding another layer of pressure. The average weighted cost of capital for the GCC construction sector is estimated at around 9.7%. The UAE’s base rate stood at 4.40% as of July 2025, while Saudi Arabia’s repo rate was 5.0% at mid-year.
Higher rates increase debt-servicing costs, particularly for long-duration projects. Lenders are also becoming more selective, favouring developers with proven track records, phased execution plans and clearer cash-flow visibility. In response, developers are increasingly adopting phased launches, strengthening presale and pre-lease requirements, and exploring capital-market instruments such as sukuk and infrastructure bonds.
While financing remains accessible for major developments, profit margins are under pressure, execution risks are higher for smaller or luxury-focused players and required returns have moved upward making careful financial planning increasingly important across the sector.
Climate Resilience and Insurance Pressures
Climate risk is becoming an increasingly important consideration for GCC real estate. Coastal cities including Jeddah, Doha, Dubai, Manama, Kuwait City and Muscat face exposure to extreme heat, flooding and rising sea levels.
The UAE’s April 2024 floods highlighted the financial implications of these risks, with insured losses estimated at US$ 2.9–3.4 billion. The government has subsequently launched an estimated US$ 8 billion national drainage and flood-defence programme, commencing in 2025. Property insurance rates in the UAE also rose by up to 15% towards the end of 2024, as insurers adjusted pricing to reflect higher climate-related losses.
In Saudi Arabia, public entities and investment arms are directing substantial capital toward water security, and flood-mitigation initiatives designed to protect large-scale developments, including major coastal and desert megaprojects. At the same time, insurance-sector assessments are identifying elevated climate and environmental exposure, reinforcing the need for resilience planning to maintain long-term insurability and financing viability.
Looking ahead, navigating these challenges will be crucial in maintaining the growth momentum of the GCC’s real estate industry. A more disciplined and risk-aware approach will therefore be essential for the sector to translate the region’s ambitious development plans into sustainable, long-term growth.
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