ASIA/EUROPE - AXA Real Estate Investment Managers (AXA REIM) has moved one step closer to creating a dedicated Chinese real estate fund.

The European fund manager has signed an agreement with China's largest insurance company, Ping An Trust, to co-invest in the development of residential projects in China.

The deal represents AXA REIM's first step into China and will see both joint venture partners invest in developing mid-to-high end residential projects.

Preparation works to enter China residential property markets started earlier this year when AXA REIM identified early signs of a recovery.

The fund manager is confident of a sustainable broader market recovery in the medium to long-term, according to officials.

Frank Khoo, hired by AXA REIM last year to lead operations on the Asian continent, also said: "We like the middle to upper class residential space because of the economics driving it - increasingly better pricing opportunities - and there is still such a big urbanisation story going on".

Khoo listed China's young and growing population, rising incomes, current low mortgage penetration rates and the attractiveness of investing in a sector that is "self-financing and self-liquidating" as key drivers for the business opportunity.

He added that unlike investing in affordable housing, the middle class realm allowed for more innovative designs to be incorporated in developments.

"In terms of the lower end of the spectrum, I do not think we can add value there, it is all down to price and margins are too thin", he said.