Nov. 17 (Bloomberg) -- The Gulf needs to expand its securitization markets to finance the costs of the region's real estate boom and increased expenditure on infrastructure projects, Moody's Investor Service said.

``Funds are needed for the construction of these homes, but many local banks are over-exposed to the sector,'' Khalid Howladar, senior credit officer at Moody's, said in an e-mailed report today. ``As a result, the market -- including securitization -- is likely to cover an increasing portion of the financing going forward.''

Gulf countries are investing in housing, transport and tourism to diversify their economies away from oil. Outstanding mortgage loans in the United Arab Emirates almost doubled in the year through June as property prices soared to a record. Mortgage loans leaped 92 percent to 87.6 billion dirhams ($23.8 billion), compared with annual growth of 55 percent in March, the central bank said today.

HSBC Holdings Plc indicated in a report last week that house prices in Dubai and Abu Dhabi have begun to fall. The U.A.E. central bank has held discussions with the finance ministry on measures to support real estate lending.

The local bond market ``is essential to the region's future development,'' Howladar said. Securitization is the process of pooling loans and converting them into packages of securities.

Gulf states will be able to maintain fiscal spending at current levels as oil remains above the break-even point for most governments, Fitch Ratings said in a report on Nov. 11. New York- traded crude has more than halved to about $55 a barrel since reaching a record $147.27 on July 11.

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To contact the reporter on this story: Camilla Hall in London at chall24@bloomberg.net.

Last Updated: November 17, 2008 09:51 EST