Far east over Europe

By Sinead Cruise
LONDON, Nov 14 (Reuters) - The real estate arm of Scottish Widows Investment Partnership (SWIP) plans to launch its debut Far Eastern fund in 2008 and has temporarily ruled out investment in Eastern European, its new property head said.

Malcolm Naish told Reuters in an interview that some Eastern European property markets still harboured risks that were not sufficiently factored into current prices.

But Far Eastern property markets -- so far broadly untainted by U.S subprime convulsions -- had attractive growth prospects and little performance correlation to UK real estate.

"I am concerned some emerging European markets are now being priced as western European markets when there are still issues to resolve such as title, planning systems, supply and transparency," said Naish, in his first interview since joining the asset management arm of Lloyds TSB Group last month.

"I wonder whether the reward for the risk is quite in balance," he said.

Leapfrogging markets such as Russia, Romania and Bulgaria, Naish said he and senior colleagues would travel to China and Japan later this month to investigate current hotspots, with a view to bringing an institutional Far Eastern property fund to market next year -- market conditions permitting.

"We're going to have a look at Shanghai and Tokyo but we're also going to travel into the interior to Chongqing," Naish said. "It's the gateway to Western China and we really want to understand whether opportunities in China are confined to familiar markets like Shanghai or whether they can be found across the region," he said.

EUROPEAN INTERESTS
Until now, SWIP's property interests have largely focused on continental Europe and the UK, where it owns and manages around 7 billion pounds ($14.56 billion) of commercial property on behalf of institutional and individual pension investors.

But uncertainties in the longer-term prospects for UK commercial property returns have encouraged the group to consider increasing exposure to counter-cyclical specialist property sectors like nursing homes and student housing, as well as overseas expansion.

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