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Recession? War? Gulf developer continues massive Georgia luxury project.

The recent war, plunging crude prices, and an economic crisis haven't derailed plans for a gated community in the Caucasus.

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"The post-Lehman Brothers demise world ... has brought with it a massive and almost overnight retrenchment of credit in the UAE," Mr. Tuzman wrote in an e-mail message.

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Indeed, many projects have been canceled in Georgia, says Givi Korinteli, a developer with Tbilisi-based Green Development. "Companies are making sure of maintaining their liquidity."

Cheap government loans aimed at helping banks during the war are now producing a bank crisis and inflation, says Vladimer Papava, an economist at the Georgian Foundation for Strategic and International Studies.

A $4.5 billion international aid package, including $1 billion from the US, could restore confidence in the banking system, he says.

Georgia will enact further liberal economic reforms to attract more foreign investment, said Ekaterine Sharashidze, the country's economic minister.

Since the Rose Revolution of 2003, when president Eduard A. Shevardnadze was displaced in a bloodless coup, the government has attracted foreign money by slashing regulations, eliminating corruption, and developing a reputation as accommodating to businesses.

The government has given almost "too much support" to Rakeen, Mikadze admits. "When we have a problem they always help us."

Before the war, Georgia had focused on building its service industries, notably transport and tourism. Its greatest significance to the world economy in recent years has been its oil and gas pipelines, including the Baku-Tbilisi-Ceyhan pipeline, which carries about 1 percent of the world's oil needs to the Mediterranean Sea.

"Georgia doesn't have much to offer besides services," says Fady Asly, head of the International Chamber of Commerce in Georgia, adding that Rakeen's plans will help the country meet its seemingly lofty goal of serving as "the five-star hotel of the region."

Rakeen's marketing campaign is selling the country as much as the houses it builds, according to Lasha Machavarioni, a Rakeen marketing executive. "Georgia's culture is very rich, but nobody knows it."

The company's $1.3 million luxury villas are targeted at primary buyers – those who actually plan to occupy the dwellings – which it hopes will prevent the speculation that artificially drove up prices in investment hotspots such as Dubai. Georgia's comparatively cool climate and two-hour flight distance from much of the Gulf region is expected to appeal to buyers from the Middle East.

Investors are still worried, though, about the resumption of fighting, and the country has systemic economic problems, Mr. Papava says.

Georgia's leaders tout its ranking as number 35 on the World Bank's Ease of Doing Business Index, but this is the result of smart government public relations, not real reform, Papava insists.

"We have two economies – a virtual economy and the real economy. In the virtual economy, we are the best, because everything is the best in Georgia according to public relations," Papava says.

The real economy has weak property rights and lacks an independent judiciary, according to analysts.

In both economies, Rakeen's cranes and cement trucks are still building luxury villas.