Published September 4, 2008

Morgan Stanley raising US$10b global property fund: source

US$1.5b or more to be invested in China over the next few years

(SHANGHAI) Morgan Stanley is raising US$10 billion for a global property fund and plans to put US$1.5 billion or more of that into China, shrugging off concern about a property market downturn, a banking source said yesterday.

The Morgan Stanley Real Estate Fund VII Global, the latest in a series of property investment funds, is expected to begin investing worldwide before the end of this year, said the source, who had direct knowledge of the fund.

It will invest at least 10 billion yuan (S$2.1 billion) in China over the next few years, taking a gradual approach while focusing on the largest cities such as Shanghai, where the price for a luxury downtown apartment can exceed US$20 million, said the source.

The retail portion of the fund- raising has been completed with a minimum requirement of US$1 million for individual investors in Asia.

The institutional portion, which requires at least US$10 million for each institutional investor, will be completed soon, the source added.

'It should not be too difficult for Morgan Stanley to raise funds from retail investors in Asia since, as you know, in China alone the number of millionaires has been growing very fast in recent years,' the source said.

'As for the institutional portion, many of them are old friends of Morgan Stanley,' he said, referring to investors in the Wall Street bank's last six global property funds.

The source declined to be identified because he was not authorised to comment on the fund to the media. Morgan Stanley declined to comment.

Some industry watchers, including Andy Xie, formerly Morgan Stanley's Asia economist, have warned that bubbles may be emerging in the property markets of some major cities such as Shanghai, where many buyers are foreigners and investors rather than long-term residents.

A property investment arm of Morgan Stanley has plans to sell at least two high-end serviced apartment projects in Shanghai, one of its earliest China property investments, for several billion yuan, people familiar with the situation told Reuters in June.

But Morgan Stanley and other foreign funds, including Blackstone and Carlyle, are also looking for new investment opportunities in high-end residential and commercial properties in China, according to industry sources.

Last month, sources with direct knowledge of the matter told Reuters that Blackstone and others were vying to buy up to four commercial buildings in Shanghai for as much as US$1 billion. That deal is still under discussion, however, industry sources have said.

Some foreign funds have also begun shifting their focus to second-tier Chinese cities, reflecting the large number of investors and intensifying competition in the largest cities. -- Reuters