Oct. 6 (Bloomberg) -- The planned merger of two mortgage lenders and the start of a state-backed property fund may help Dubai companies expand in the region and protect its real- estate market from the global credit crunch.

Amlak Finance PJSC and Tamweel PJSC, the United Arab Emirates' biggest mortgage lenders whose merger is being planned, will give Dubai companies the necessary financial strength and scale to expand in local and regional markets, the companies said in a statement yesterday.

``Consolidation is an appropriate thing to happen at this stage as it is important to have both scope and scale,'' Blair Hagkull, managing director for the Middle East for property consultant Jones Lang LaSalle, said in an interview from Dubai today. ``The discussed merger is a really about a regional play, not just about the Gulf but also the Middle East.''

A real-estate fund to invest in Dubai and the United Arab Emirates announced Oct. 4 by DIFC Investments LLC, a unit of state-owned business park Dubai International Financial Centre, will help support Dubai's property market, where prices are forecast to remain unchanged until 2010 after quadrupling in the past five years, according consultant Colliers CRE Plc.

Record oil revenue is spurring economic growth in the Middle East, which pumps around 25 percent of the world's oil supply, and attracting thousands of expatriates to the region. The boom has boosted demand for homes and mortgage loans as the global credit squeeze raises concerns of a regional slowdown.

Home prices

Home prices in Dubai are likely to remain unchanged until 2010 after five years of steep gains, Colliers said yesterday. About 140,000 new homes will be completed in Dubai by the end of 2010, adding to the existing stock of about 300,000, just helping to meet demand, it said.

DIFC Investments said its fund will seek to benefit from the steady growth of the real-estate industry in recent years. DIFC may invest as much as $2.75 billion in the fund, the Wall Street Journal reported.

``The Gulf region is awash with cash and investors are setting up different schemes, or funds, and that will support the property market,'' Mounir Haidar, chief executive officer of Sorouh Real Estate PJSC, Abu Dhabi's second-biggest real estate developer, said in an interview in Dubai today. The DIFC Fund is ``another way to channel'' the money into ambitious and needed projects, he said.

Diversifying economy

Dubai, the second-largest of seven sheikhdoms that make up the U.A.E., is spending billions of dollars on finance and tourism projects to diversify its economy. It set up DIFC, a 110 acre tax-free business park with its own regulator, to attract global finance companies like Goldman Sachs Group Inc. and allowed foreigners to own property in some areas.

While the rest of the world is struggling to cope with falling property prices, failing mortgages and poor liquidity, the U.A.E. is ``probably better prepared'' to grapple with these than others, Hagkull at Jones Lang LaSalle said.

Liquidity is unlikely to be a problem in the U.A.E., the home to the world's biggest sovereign wealth fund with assets of about $875 billion, according to the Economist Intelligence Unit. The U.A.E. also holds about 8 percent of the world's oil reserves and is the third-largest producer in the Organization of Petroleum Exporting Countries. Oil prices touched a record $147.27 a barrel July 11 before falling to below $90 today.

The U.A.E. central bank set up a 50 billion-dirham ($14 billion) fund for banks Sept. 22 to ease liquidity constraints and boost lending caused by the seizure of global credit markets.

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.netMatthew Brown in Dubai at mbrown42@bloomberg.net

Last Updated: October 6, 2008 08:02 EDT