CORRECTED - INTERVIEW-Palestinian housing project planned for W.Bank, Gaza

RAMALLAH, West Bank, April 13 (Reuters) - The Palestine Investment Fund plans to build 30,000 homes for low-income families in the West Bank and Gaza Strip, a $1.5 billion endeavour supported by foreign backers to meet growing demand.

"It is expected to help solve the housing problem in the Palestinian territories," Mohammad Mustafa, CEO of the independent fund, told Reuters in an interview.

Mustafa, a former World Bank official, said Palestinian President Mahmoud Abbas and international peace envoy Tony Blair would attend a ceremony on Monday establishing the $500 million al-Amal Mortgage Finance Company to support the project.

He said the U.S. Overseas Private Investment Corporation, the World Bank's International Finance Corporation and Palestine Bank would sign a memorandum of understanding to set up the firm.

"The company will offer affordable mortgages directly to low-income families to enable them to buy housing units," he said.

Mustafa said the PIF plans to build 30,000 units next year as a pilot project, estimating it would cost more than $1.5 billion to construct 10 self-sufficient communities in the West Bank and Gaza Strip.

A study carried out by the fund said Palestinians would require an additional 470,000 units over the next decade. The PIF plans further projects, raising competition concerns among private sector companies involved in home construction.

"The PIF is concentrating on housing projects as it saw the need for housing projects and tries through the mortgage company to help solve the financing problem of low-income families," Mustafa said.

"We are focusing on strategic projects that help create jobs and help cement people's presence on their land," he said.

More than 2.5 million Palestinians live in the West Bank on occupied land divided by Jewish settlements. Another 1.5 million reside in the Gaza Strip, territory Hamas Islamists seized from Abbas's Fatah faction in June.

POVERTY

Palestinian-Israeli violence and Israeli-imposed travel restrictions have led to a deterioration in the Palestinian economy and a drastic increase in poverty levels.

The PIF, with total assets of $850 million, was set up in 2002 to consolidate the funds of the Palestinian Authority under the control of the Finance Ministry.

Most of its funds were invested abroad but Mustafa said "the PIF's strategy was to increase local investments to help develop the Palestinian economy and create jobs".

One of the PIF's major projects is the creation of a $700 million second mobile operator in the Palestinian territories established with Wataniya and QTel.

Another project is a $228 million loan guarantee programme for small and medium-sized enterprises, which make up the bulk of businesses in the Palestinian areas. (Editing by Mary Gabriel)