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Real estate funds look to rare opportunities in Chinese property market

ING Real Estate is marketing a $750 million fund to build property in China, saying the troubled market gives a once-in-a-decade chance for investors to reap high returns from a long-term trend of mass urbanisation.

Richard van den Berg, the fund management firm's country manager for China, said the ING China Opportunity Fund II would launch in the first quarter of 2009. The main focus is going to be residential development in first and second tier cities.

Van den Berg said that the new, closed-end fund would target internal rates of return of more than 20% and have a lifespan of seven years and an option to extend that for two years.

But van den Berg added that the fund would bide its time putting the money to work because he believed the global credit crisis was only just starting to be felt in China. 'One of the results of the current situation is that I don't think that you need to be rushing anything. The biggest asset you can have now is time,' he explained.

'The fund will have three years to draw down on its investment, which should give enough time to identify projects in cities such as Shanghai, Chongqing, Chengdu and Foshan,' he added.

The financial turmoil of recent months has made investors wary of emerging markets. But van den Berg said many believe bargain deals will arise in China in the next couple of years.

'They are saying this is an opportunity that you only get once in eight, nine or 10 years,' he said.

Chinese developers are hungry for funds to complete projects because they cannot raise money on capital markets or from banks. A slump in apartment sales has also hit their cash flow.

Many of the property industry's woes stem from Beijing's efforts to cool the market and fend off a crash, telling banks to cut their exposure to property and introducing rules to deter speculation.

But it has resulted in plummeting property prices and sales. The government is now backtracking, bringing in moves to encourage homebuying in an effort to stimulate domestic demand at a time when exports are falling fast.