State-backed merger would create a company with $15 billion in assets.
Talks of a potential merger between Abu Dhabi property firms Aldar Properties and Sorouh Real Estate are at an advanced stage but a due diligence process was still ongoing, the two companies said in a joint statement on Tuesday.
Indebted Aldar and Sorouh said in March that they were evaluating a state-backed merger, which would create a company with $15 billion in assets.
A senior Sorouh executive said on Sunday that the potential merger could be announced "within a month."
"Aldar Properties and Sorouh Real Estate would like to clarify that they remain in ongoing due diligence discussions to evaluate the merits of a potential merger," the statement said.
"A decision on whether to recommend a merger to shareholders will follow the completion of these discussions which are at an advanced stage."
Shares in both the property firms surged on Monday as investors bought in ahead of the potential tie-up, lifting the UAE capital's bourse to a seven-month high. Aldar rose 4.8 percent, while Sorouh shares jumped 5.1 percent.
Cash-rich Abu Dhabi, which is conducting a strategic review of its state-linked entities, has spent more than $10 billion on Aldar itself in the last two years as the emirate's property market was hit by oversupply and falling prices, compounded by a similar collapse in neighbouring Dubai.
Aldar, which built Abu Dhabi's Yas Marina Formula One motor racing circuit, is part-owned by state investment fund Mubadala, who is playing a key role in the merger discussions.
Goldman Sachs and National Bank of Abu Dhabi are advisors to the steering committee overseeing the proposed tie-up. Credit Suisse is advising Aldar while Morgan Stanley will work with Sorouh.
The merger talks between the two firms come as Abu Dhabi's property market continues to face challenges amid a huge supply of high-end homes entering the market this year. Property prices in the emirate are expected to fall another 5 percent in 2012, a Reuters poll in May showed.