UAE banks should be more careful in lending to the construction sector due to fears it could be affected by a credit crunch similar to the US subprime crisis, the Abu Dhabi Chamber of Commerce and Industry (ADCCI) said.

"Banks and other institutions should exercise utmost care and derive lessons from what happened in the US, where major financial institutions reeled under heavy losses," the report said.

The industry lobby said banks faced challenges in their lending activities, which include an expected rise in funding for projects, lack of proper legislations to regulate mortgages and a possible decline or slow down in the real estate sector, newspaper Emirates Business reported on Tuesday.

The report forecasts that real estate credits, which are normally long-term loans, could reach Dh150 billion ($40.84 billion) in Abu Dhabi in the next five years. Current and planned construction projects are valued at more than Dh1.3 trillion.

Regional economic growth spurred by a six-fold rise in oil prices since 2002 has led to investors piling in to the UAE's booming real estate sector.

At the end of last month, Standard Chartered said the property market boom in Dubai was showing signs of overheating as investors betting on quick gains inflate prices of real estate still under construction. - Reuters