Abu Dhabi’s two largest developers are on the cusp of merging to create one of the region’s largest property companies in a move aimed at stabilising the emirate’s struggling real estate market.

The boards of directors at Aldar Properties and Sorouh Real Estate have unanimously agreed to merge. The plan is now awaiting approval by shareholders of both firms.

If approved by 75 per of the two companies’ shareholders, the deal will create Abu Dhabi’s most influential private sector client for construction companies with a land bank of 77 square kilometres and more than $11bn of projects currently being built.

The merger comes as confidence returns to the UAE’s property market and the new entity, known as Aldar Sorouh, plans streamline its operations with cost savings of AED90m-110m a year ($300m-405m) and capitalise on the growing demand for freehold property that can be sold to expatriates with new projects. “We expect there will be more development in the freezones as we see the economy improve,” says Aldar Sorouh chairman Abubaker Seddiq al-Khouri. “At the same time, there will be more projects from the government.”

Over the past four years the two companies have been forced to shelve work on major projects such as Al-Raha Beach and Shams Abu Dhabi. According to regional projects tracker MEED Projects, the value of construction work awarded by the two companies fell from $10.6bn in 2008, to $1bn in 2012. There are more than $26bn of projects that are currently on hold or cancelled.

The two companies have received substantial state support during the downturn. Both have been given government contracts to develop housing schemes for UAE nationals, deals that have given both entities much needed cashflow.

Both have also received payments from the government for the transfer of assets. On 21 January, the government agreed to a AED3.2bn deal with Sorouh for the transfer of assets. Of this, AED1.6bn will cover infrastructure at Shams Abu Dhabi, and the remaining AED1.6bn will cover properties at the Gate development, which will be completed this year.

In 2011, Aldar received $9.8bn from the Abu Dhabi government and sold some of its assets to the state, including the Ferrari World theme park.

The two companies insist that there has been no pressure from the government to merge. “There has been no force from outside to merge,” says Al-Khouri. “It was purely a choice by the board, subject to shareholder approval.”

The merger of Aldar Properties and Sorouh Real Estate has been expected since March 2012 when the two companies announced their intention to join forces. The boards of directors at both companies announced on January 21 that they have unanimously voted to recommend a merger to their shareholders. The transaction now requires approval by at least 75 per cent by value of the shares at extraordinary general meetings of both companies.

If approved, the merger will take place in June. It will see Sorouh shareholders receiving 1.288 Aldar shares for each Sorouh share they hold. On the date of the merger, Sorouh shares would be delisted from the Abu Dhabi Securities Exchange and Sorouh would be dissolved as a legal entity, Aldar will then be named Aldar Sorouh Properties. The company will be headed by Al-Khouri as chairman – he is currently managing director at Sorouh, with Aldar chairman Ali Eid AlMheiri as the vice-hairman.

The merger would create one of the largest listed real estate companies in the region with AED47bn of assets as of September 2012, and a combined market capitalisation of AED10.9bn – based on share prices on 17 January this year.

The merged entity will be the fifth-largest listed company on the Abu Dhabi exchange by market capitalisation and the third-largest publicly listed real estate developer in the region behind Qatar’s Barwa Real Estate and Dubai’s Emaar properties.