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No funding for mega-projects investment, banker says

by Jamie Stewart

Nov 12, 2008

Mega-projects could face extreme funding difficulties, a top investment banker has warned

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Developers will find it “virtually impossible” to fund huge products for some time, a top investment banker warned.

Rasmala Investments founder and CEO Ali Samir al Shihabi said that “developers capacity in terms of what they can deliver will be much reduced,” as a result of the global financial crisis.

Shihabi, speaking at the Dubai Property Society’s monthly breakfast meeting, made the distinction between the “real market” – projects that have broken ground, and the “paper market” – projects that are in the pipeline.

“The paper market has died for the time being,” he said. “It will be virtually impossible for developers to find finance for huge projects.

Shihabi’s comments place a question mark over the ability of many Dubai mega-projects to break ground, including huge swathes of Tatweer’s Dubailand, the Nakheel Harbour and Tower, and sections of Meraas’ Jumeirah Gardens, each of which are “paper projects,” under Shihabi’s classification.

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But Shihabi added that “The underlying economic situation of the GCC region will make it completely different from the rest of the world.

“The financial crisis could not have come at a better time (for the region). GCC governments all have massive reserves with which to support the banking system.”

The comments came as developers and contractors across the region faced up to the realities of the global financial crisis, evident in the regional slowdown.

Dubai-based Macro CEO Bill Heath told Construction Week it was difficult to predict how long the stalled situation would last. “It could be a few months, it could go on for a year,” he said.

But Heath added, “The market will be stronger as a result, because it will remove a lot of the speculation that has been damaging it.”

Shihabi also called for increased transparency within the real estate market. “Communication is a weak skill among business, political and economic leaders in the GCC,” he said.

“They do not understand the importance of explaining what they are doing.”

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