The property investment arm of Citigroup is investing around $400 million of equity from a recently raised fund in India and $600 million in China, with hotels, technology parks, and housing estates on its menu.

Citigroup Property Investors closed a $1.29 billion Asia opportunities fund in February, of which 40 per cent was allocated to projects it had already started.

The unit's Asia head, David Schaefer, said other investments were being made fast, especially in India, where a growing middle class hankers for new homes, offices and shopping centres fitting for an economy growing at an annual rate of over 8 per cent.

"Our investment pipeline is very robust," Schaefer said in an interview on Thursday, adding that he travels to India about once a month. "We look for partners we want to do business with over and over again, and we look to extend those relationships."

Citigroup has teamed up with seven Indian developers, including unlisted Nitesh Estates for a $100 million luxury hotel in Bangalore, and Gera Developments, for a $125 million housing project in Pune.

The fund is also building serviced apartments with US developer Portman Holdings and India's biggest mortgage lender Housing Development Finance Corp, and technology parks in Bangalore and in Noida, on the outskirts of New Delhi.

Schaefer said that using borrowing at on average 50 percent of a project's value, and adding equity from joint venture partners, the Citigroup fund would be involved in around $2 billion worth of property projects in India.

His focus is to build up joint venture partnerships on individual projects, but he did not rule out taking equity stakes in Indian developers--a strategy followed by rival US investment bank Morgan Stanley.

"It could be a very viable investment option," Schaefer said. "The fact we haven't announced an investment like that doesn't mean that it's not something we'd do."

Worth The Risk

Since India eased rules on inward investment in its construction sector in early 2005, foreign property funds, especially from the United States, have flocked to the country.

For example, US private equity firm Apollo Management will pour $2 billion into Indian real estate, rival Warburg Pincus [WP.UL] has earmarked $250 million, and Merrill Lynch and JPMorgan are also hunting deals.

Some funds are talking of internal rates of return of as high as 40 per cent, but most seasoned investors say 20-25 per cent is more realistic. Schaefer would not be drawn on the returns he expected from Citigroup's fund, but said they were enough to justify numerous risks.

"In India, we're taking development risk together with our partners, market risk in terms of selling residential and leasing risk with offices on spec," he said.

Many investors in India also talk about risks associated with its notorious red tape and murky land titles, which is exacerbated as land disputes proliferate as property prices soar.

But Schaefer said the country's creaky infrastructure was the main challenge, but also an opportunity for developers who could provide the power, roads, and sewage systems that homeowners and businesses wanted.

Turning to China, Schaefer was keen on building and buying property across the spectrum. The Citigroup fund has already made three investments in Shanghai, including buying a 75 per cent stake in the Novel Plaza office building, but was also looking at up-and-coming 'second tier' cities Tianjin, Chengdu and Xian.

"These are provincial capitals with a population of four million or more, good GDP and population growth and migration, and good infrastructure, with wonderful airports and toll roads straight into the city," he said.

The Citigroup fund, which drew 19 global institutions as well as rich individual investors, has also invested in Hong Kong, South Korea and Japan.