With a size of about SR4.4 billion, the Saudi air conditioning market is one of the biggest in the MENA region, Al Rajhi Capital said in a report Sunday.

"We expect this market to continue to grow at a healthy pace, largely backed by ever-increasing population, high GDP per capita, the current boom in the construction market and above all these, the hot climate of the Kingdom," it said.

The boom in the Saudi construction market will play a crucial role in stimulating the air conditioning demand, with the split and windows AC still dominating the market, while chillers and packaged AC are currently outperforming in terms of growth, it further said.

In recent times, there has been a pressing need for installation of air conditioners in practically every building in the Kingdom, be it a commercial, residential, or industrial one. Further, the Saudi government is carrying out wide-scale constructional activity to improve its infrastructure.

In 2012, the government announced the highest allocation (SR168.6 billion, 24 percent of the total planned expenditure) for the education and training sector in an attempt to develop human resources across the Kingdom, the report noted. The budget has allocated funds for setting up 742 new schools, 40 new colleges and an electronic university. In 2011, the total planned budget for education and training was SR150 billion (26 percent of planned budget), which included building 610 new schools and renovating 2,000 existing school buildings.

"These projects will enhance the demand for all consumer durable products, including AC products, thus boosting their sales," it said.

The Saudi government’s move in increasing the budget for the Real Estate Development Fund by SR40 billion and raising the Fund’s upper limit for loans from its earlier limit of SR300,000 to SR500,000 "should positively impact the housing market and consequently boost consumer durable products, in general, and air-conditioning products in particular," Al Rajhi Capital said in the report.

Moreover, the Saudi government decision to build 500,000 units to tackle the housing supply problem "will again stimulate the demand for all consumer durable products, including air conditioners."

The Saudi AC market witnessed a dramatic shift from Japanese air conditioners to Thai and Korean ones over the last few decades. Nowadays, one can hardly see any Japanese AC products in the Kingdom. The last man standing was the famous Mitsubishi brand which has been facing cut-throat competition from Thai and Korean brands "as the consumer tastes and preferences have shifted from high quality to relatively lower ones."

For example, the report said, prices of Japanese wall split AC ranges from SR7,000, to SR8,000 while prices of Thai brands ranges from SR4,000 to SR5,000.

The market is likely to see another shift toward Chinese products going forward.

Currently, Chinese wall split AC prices range roughly from SR2,500 to SR3,000, and the report forecast that "Chinese air conditioners will capture more market share over the next years, especially split ACs."

As a result, many companies have already started introducing new Chinese brands to the market such as Al Zagzoug (distributors of Fuji) which introduced the famous Chinese AC brand GREE.

Furthermore, Shaker (distributor of LG) now sells Mideawhich is another well-known Chinese brand.

"Companies which are already selling Chinese air conditioners are better positioned to capture more market share from this trend," the report noted.

In this context, the report said Shaker “occupies a formidable position in the Saudi AC market, adding that “it enjoys the highest market share in split AC space and a decent market share in window ACs.”

Shaker’s strategy of manufacturing LG air conditioners in the Kingdom will open a major channel for government projects and will drive the company’s growth, the report noted.