ABU DHABI: Abu Dhabi's Sorouh Real Estate, which is in merger talks with bigger rival Aldar Properties, reported a 34 per cent rise in quarterly profits yesterday as income from government projects helped offset a downbeat real estate market.

Sorouh, the second-largest developer by market value in Abu Dhabi, said housing projects for the government generated sales of 1.2 billion dirhams ($327 million) in the first half of the year.

"There are no new developments being approved except national housing projects," Gurjit Singh, Sorouh's chief operating officer said.

"Approval has lessened for new projects but this will allow for existing supply to be absorbed."

Sorouh said it made net attributable profit of 148.2m dirhams in the second quarter to June 30, up from 110.4m dirhams in the prior-year period.

Lower costs and the end of contingencies and provisions against completed projects also lifted quarterly income.

Quarterly revenue was 681.3m dirhams, down from 1.2bn dirhams last year when it booked sales from the handover of units in Sun and Sky Towers.

In March, Sorouh and Aldar said they were in talks for a state-backed merger that could create a company worth about $15bn in assets.

Sorouh said yesterday that the due diligence process for the merger is "well underway." Abu Dhabi's property market was less-affected than neighbouring Dubai where home prices plunged by over 60pc from its peak in 2008. Property prices in Abu Dhabi are expected to fall another 5pc in 2012, a Reuters poll in May showed.