Funds eye risky China property

By Alex Frew McMillan

HONG KONG (Reuters) - Property investors are pencilling "second-half, 2009" in their diaries as the likely time to start pouring money into China again as they search for bargains in its ailing real estate market.

But they are wary of slowing economic growth, overbuilding in some areas, difficult partnerships with developers and red tape.

Private equity fund manager Gaw Capital Partners is looking to raise up to $1.5 billion (990 million pounds) for Chinese property, while ING Real Estate is marketing a $750 million fund it wants to launch in the first quarter of next year.

"I think it's a good time to start looking," said Goodwin Gaw, co-founder of Gaw Capital, which manages $4.7 billion of assets in 14 Chinese projects. "2009 and early 2010 could be a sweet spot."

Many among the 540 investor groups at the MIPIM Asia property conference in Hong Kong last week pinpointed China as the market that would recover quickest from the global economic crisis because of growing domestic demand for housing and office space. And they are keen to raise funds to prepare.

Behind the enthusiasm is a hope that capital-starved property firms will offer plum investment deals to foreign investors looking for internal rates of return of 25-30 percent.

Chinese developers are suffering because capital markets have clammed up and banks clamped down on loans to the industry as part of government efforts to stamp out property speculation and cool the economy.

Beijing's moves sparked property price slides of as much as 20-30 percent in some cities, particularly in the south. Now, faced with cooling economic growth and the prospect of higher unemployment rates, the government is back-pedalling, trying to stimulate the housing market to boost domestic demand.