China private equity property funds have captured investor interest, raising $3 billion in 2011, while the appetite for India real estate significantly dampened, garnering just $700 million, according to a new report by data provider Preqin.

China-focused funds comprise the lion’s share of the $4.1 billion raised for Asian emerging markets property PE vehicles last year, which Preqin classifies as those that primarily invest in the region’s markets outside of Japan and Australasia.

Asia accounted for 55% of the $7.5 billion raised for emerging markets property in 2011, down from a peak in 2008, when the region represented more than three-quarters of capital.

China is also down from its 2008 high, when it raised $5.4 billion. However, India-specific funds suffered a much more dramatic drop from the $4.7 billion achieved in 2008, falling to $800 million in 2010 and $700 million in 2011.

Property valuations in India peaked in 2007 but still have not recovered, meaning real estate funds that piled into the market five years ago are finding it difficult to exit. As a result, the secondary PE market in India has picked up, according to one private equity executive, as the market’s underperformance is prompting investors to sell assets at attractive prices.

In China, cooling measures introduced last year to temper its post-crisis property boom have led to falling valuations. Adding to the market’s attractiveness is the fact that the tightening of bank lending to the real estate sector has provided an opportunity for private equity firms to step into the breach.

The biggest Asia property fund to achieve a final close last year was the $1 billion Macquarie Chinese Real Estate Fund II, which invests in retail shopping centres on the mainland.  

Money is expected to continue to flow into the sector, with 45 Asia-focused funds now in the process of raising a total of $16.7 billion in investor capital. It is more than triple the collective $4.5 billion being sought by Central and Eastern European vehicles, and nearly five times the combined $3.5 billion being targeted by Latin American funds.  

The fundraising targets are in line with investor enthusiasm, with one-third of investors in private real estate funds indicating that they have, or are interested in, exposure to Asia. It compares with the much smaller proportion that state a preference for Latin America (5%), Central and Eastern Europe (5%) Middle East and North Africa (2%), and Africa (1%).

“Asia has the largest private real estate fund market outside North America and Europe,” notes Preqin, “and has typically been the region targeted first by investors looking for emerging market investments.”