* Marketing a $750 million fund to launch in Q1 2009 * To partner Chinese developers to build housing * Targeting IRR of 20 percent
By Alex Frew McMillan
HONG KONG, Nov 19 (Reuters) - ING Real Estate is marketing a $750 million fund to build housing 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.
ING's first China fund, worth $500 million, has been completely invested since the beginning of the year, and the company told Reuters in June it was planning a follow-up worth $750 million.
The financial turmoil of recent weeks 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 on the sidelines of the MIPIM Asia property conference in Hong Kong.
ING Real Estate is among several fund managers looking to partner Chinese developers who 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.
In response, home sales plummeted, first in overheated Guangzhou and Shenzhen in the south, then elsewhere. 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.
"The main focus is going to remain residential development in first and second tier cities," van den Berg said.
ING Real Estate has invested with listed Chinese developers Gemdale Corp and Shanghai Forte Land, as well as Longfor Properties, whose planned $1 billion Hong Kong initial public offering was scrapped because of the stock market slump. The second fund will also work with several developers.
"It is very rare to have a nationwide developer, covering the whole of China," van den Berg said. "All of them are in multiple cities, but all have certain areas where they are stronger."
Van den Berg added that the new, closed-end fund would target internal rates of return of more than 20 percent.
It will have a lifespan of seven years and an option to extend that for two years. But van den Berg said 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," he said.
"The biggest asset you can have now is time."
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.
"If for some reason the meltdown takes longer, that would be a problem," van den Berg said. (Editing by Dominic Whiting/Will Waterman)