Cityscape mega projects ‘virtually impossible’ to finance in current economic climate

Some of the mega projects announced recently at Cityscape in Dubai could be delayed as it becomes increasing difficult to finance such large developments due to the global credit crisis.

Developers will find it 'virtually impossible' to finance new projects because of the deepening liquidity crunch, the CEO of Dubai-based investment bank Rasmala Investments has warned.

Ali Samir Al-Shihabi said there would be a dramatic slowdown in new projects being built, causing a 'substantial and negative impact on the paper market' – schemes which are yet to be launched.

'It will be virtually impossible for developers to secure financing for new projects. Credit is expensive and difficult to get,' he confirmed.

Egyptian investment bank EFG-Hermes has also cast doubt over the viability of recently launched Dubai mega-projects, stating their timing was not 'ideal' due to reduced investor appetite and tighter credit conditions.

Such is the level of concern that a committee has been set up by the Dubai government to oversee future real estate projects. The committee will decide on the launch of projects in a bid to help synchronise the plans of various developers to best meet future supply.

No current developments would be stopped and the committee will only look at projects still to be launched.

Although real estate developments that have already broken ground are likely to continue progressing, funding for off plan projects is likely to become increasingly hard to come by.

'The top priority is meeting existing commitments, and the government has given money to the banks to continue existing projects. The value of this sector will hold, after a slight drop, and you may see a limited amount of trading, possibly at a discount, by those that are in urgent need of realising their assets,' Al Shihabi added.

'Developments that are only on paper are still a huge chunk of the city's projects, and that has died for the time being. Even the big developers, the Emaars and Nakheels, will have huge problems getting financing, and what is offered will be very expensive. A lot of projects are going to be scaled down or stopped,' he predicted.

Despite this Al Shihabi said that regional investors should not be unduly worried about the state of the property market. The governments in the GCC have stockpiled cash reserves from oil revenues for the last five years, meaning that the economies are able to absorb any downturn.

He called for this to be publicised. 'One of the reasons for investor confusion is because the political, financial and business leaders have not known how to correctly communicate the strength of the economy and the measures that have been taken to protect the market,' Al Shihabi said.

He also hit out at the excess of expectation that surrounded Cityscape. 'Everything was the biggest, the tallest, the grandest, and people didn't take the Dubai market seriously. At cityscape everyone knew that the world had changed but we came out and said announced two entire new cities, a one kilometre tower, and the rest of the world either thought we were crazy or didn't know what was going on,' he said.