The property arm of Singapore state investment firm Temasek tied-up with Malaysian investment bank CIMB today to form the country's first private institutional real estate fund with initial capital of RM500 million.

CIMB chief executive Nazir Razak said the bank and Singapore's Mapletree Capital Management Pte Ltd would invest up to RM100 million each as seed money and raise additional equity of RM300 million from other foreign and domestic institutions for the fund known as "CM-1."

"We hope to launch the real estate fund with capital of RM500 million within six months," he told reporters after the signing ceremony to form a joint-venture company known as CIMB-Mapletree Management (CMM).

"With gearing (debt), CM-1's total investible capital is expected to comfortably exceed one billion ringgit," said Razak, who is brother of Malaysian Deputy Prime Minister Najib Razak.

CIMB Real Estate holds a 60 percent stake in CMM and Mapletree the remaining 40 percent.

CMM will embark on a roadshow to Europe and the United States to seek additional capital for the fund, which will have a life of up to 10 years and focus on properties in Malaysia, Razak said. It will have a 20 percent allocation for investing in assets in the region, he added.

Mapletree chief executive Hiew Yoon Khong said CMM would also set up a parallel Islamic fund to cater to Middle Eastern investors, who are shifting their focus from the United States and Europe to Asia.

He said CM-1 was expected to reap average returns of between seven and 10 percent. It will not be a speculative fund but invest in underperforming buildings or assets that can be reconfigurated to achieve better yields, he said.

"It is timely to come together to develop and offer well-structured property funds in Malaysia to institutional investors. We believe the real estate industry in Asia is undergoing a transformation," he said.

'Another milestone'

The tie-up is part of plans by Mapletree, which has a 2.5 billion Singapore dollars asset base, to become a "top flight property fund manager in the region," he added.

The signing ceremony was witnessed by Malaysian Deputy Finance Minister Ng Yen Yen and Temasek chief executive Ho Ching, who is wife of Singapore Prime Minister Lee Hsien Loong.

Ng said earlier that the alliance marked the strengthening of economic ties between Malaysia and Singapore.

"It's another milestone to mark the closer geopolitical and social ties that we share and reflects the way forward for our two nations," she said.

She said the fund would be a catalyst for the development of property-linked capital market products such as Real Estate Investment Trusts where Malaysia lags behind other regional countries such as Singapore, Japan and South Korea.

Mapletree is a wholly-owned unit of Temasek while CIMB is a unit of Malaysia's second largest financial group, Commerce Asset-Holdings Bhd.