Merrill Lynch Raises $2.65B Asia Real Estate Fund

HONG KONG (Reuters) – Merrill Lynch has raised US$2.65bn to invest in Asian real estate at a time when several funds are hoping to snap up bargain assets as the region’s property markets fall.

The U.S. bank said in a statement its Asian Real Estate Opportunity Fund would mainly invest in Japan, China, South Korea and India, but would also consider Southeast Asia and Australia.

While stocks have plummetted in the global financial crisis, property fund managers still believe they can lure investment into closed-end private equity funds that typically have a seven-year life span.

Merrill said investors in its Asia property fund included pension funds, endowments, foundations and private individuals from North America, Europe, the Middle East and Asia.

‘We see exceptional opportunities in Asian real estate over the medium and longer term,’ said Tim Grady, head of Asia commercial real estate at Merrill Lynch.

Many funds specialising in Asian property have said the next year could be a good time to buy because property booms are turning to slowdowns, and even busts.

Citigroup, which has been trying to raise a multi-billion dollar fund, is keen to invest more in China and India. And JPMorgan told Reuters in August that its special opportunities group planned to invest more than $1 billion in Asian real estate over the next three years.

Morgan Stanley has also earmarked for China around a fifth of a $10 billion global property fund it is raising.

Bargain Chinese property projects will probably be up for grabs in coming months as developers scramble to survive falling home sales and a funding crunch.

When Beijing upped the ante in a fight against property speculation at the end of last year by ruling that buyers of second homes must pay 40 percent in equity, apartment sales and prices slid in the southern cities of Guangzhou and Shenzhen.

Developers, already squeezed by a land appreciation tax and a clampdown on bank lending, then found that capital market turmoil closed off share and debt issuance.

Many property firms have slashed prices by as much as 30 percent and are looking for foreign partners to complete projects.

The situation is similar in India, where a property boom fizzled into a price drop of a third this year in some cities, and analysts expect the same in 2009.