Four key factors that mega property projects in Dubai should have in place

Four key factors that mega property projects in Dubai should have in place

At any given point of time mega projects come with their inherent opportunities and risks. It is the balancing of the opportunity with the risk which determines the overall outcome.

It is obviously the aim to limit the risk to whatever extent possible. And towards this, lessons learnt from similar projects and different timelines can be a valuable resource.

For instance, the lessons learnt from the real estate downturn of 2009 highlighted several factors which led to projects facing minor and major roadblocks.

This article examines certain key factors which any real estate project should take into account – more so large and complex projects.

1. Feasibility

The downturn in the real estate sector in 2009 brought to light several real estate projects which were launched without any project specific feasibility studies.

The decisions were made on unsubstantiated assumptions and influenced by the general market sentiment as opposed to fundamentals. Several projects did not take into account risks both internal and external and lead to project delays and certain cases failure.

The success of a project will depend on several inter-related factors, that is, market demand, project feasibility, project finance, project management, as well as micro and macro-economic conditions.

Therefore early stage project feasibility, which takes into account the variables and risks, will allow for informed decision making by the project implementers, financiers and investors. It needs to be stressed that the feasibility takes into account the prevailing and predicted micro and macro-economic conditions and financial markets both at the local regional and global level.

2. Financing

During the downturn, real estate projects were launched without sufficient project finances set in place. It was assumed that the project cash flows will be sustained through investors and no provisions were made for events of default.

It has been reported that for the Mall of the World project, 30 per cent of the financing will be done by Dubai Holding and the balance financing shall be through a broad base of institutional investors and debt. Although having multiple stakeholders creates its own complexity, it also puts into place checks and balances during the entire lifetime of such projects.

3. Project management

The role of effective project management cannot be underestimated in the implementation of such mega projects.
It is critical that the planning of such projects be undertaken at an early stage with clear protocols and lines of communications between the different stakeholders.

Further, a clear strategy for risk management is also essential. The risk identified maybe internal or external and effective strategies need to put in place to address them.

4. Stakeholder participation

The project delivery strategy also needs to be determined, that is, whether it is traditional (design and build) or integrative (owner, designer and contractors have a stake in the project). During the downturn in 2009 several projects got delayed or stalled because of dispute between the owner and the contractors.

Gulf Business

22 May 2018