A handful of western companies was straight off the starting blocks when India announced in February that it would allow 100 per cent foreign direct investment (FDI) in real estate.

Boasting the 12th biggest economy in the world - and the fastest-growing - it was not surprising that India would attract attention from multinational real estate groups.

The potential is enormous with a shortage of 12m housing units in urban areas, the scope for 400 township projects in five years and the potential for big growth in the mortgage market, according to Cushman & Wakefield Healey & Baker.

India is one of three huge markets - the others are China and Russia - where property companies which once feared to tread are sizing up big opportunities. "There is a lot of specific country and political risk in all those locations, you have to be pretty sure you are taking a careful and informed bet," says Tony Edgley, chairman of corporate finance at Jones Lang LaSalle, the property advisory group.

All three countries pose potential problems and companies are likely to encounter corruption at some point. In China investors cannot own freeholds but instead must buy a "right to occupy", which is more like a licence.

In India, in spite of a loosening of restrictions earlier this year, foreign direct investment into property must still meet stringent criteria such as a minimum size of development.

Those which have entered the market - such as Tishman Speyer or GE Commercial Finance Real Estate of the US - have usually done so through joint ventures with local partners.

China, for all its huge risks, is seen as the most exciting property opportunity in the world although - for now - most western companies have only dipped their toes into the market.

Among the most enthusiastic investors are large opportunistic property funds run by Apollo, Goldman Sachs and Morgan Stanley.

In July, Morgan Stanley and Simon Property Group linked up with Szitic Commercial Property, part of China's state-owned Shenzhen International Trust & Investment, to develop shopping centres. The venture has plans for 12 projects covering 8m sq metres. Each will be anchored by a Wal-Mart store.

The deal with Szitic is a reminder of how many multinationals attach great importance to having experienced local partners in such markets. However, Guy Hollis, head of Jones Lang LaSalle in China, says partners are not a prerequisite. "Goldman Sachs has just bought property without a local partner, as has Macquarie," he says.

Macquarie, the Australian bank, has bought nine retail malls in what is believed to be the first step towards setting up a Chinese property fund.

"Many of the US and Australian private equity groups are doing it themselves," says Mr Hollis. "Where it is risky is that tax structures and moving capital around are not easy in China.

"But foreign corporates are also seeking opportunities in the industrial market. With rising labour costs in coastal cities, industry is moving inland, leading to increased demand around cities such as Xian, Wuxi and Xiamen.

Supply has increased already, according to research by Jones Lang LaSalle. There are more than 4,500 industrial parks across China.

ProLogis, the largest industrial property group in the world, aims to build logistics parks there. It has already developed facilities in Shanghai, Beijing airport and Suzhou and it is building 1.4m sq ft of space near Tianjin, a container port. Arlington, the UK private group, has started to develop business parks in China.

Foreign investors are keen to get a toehold there because the economy looks set for galloping growth. Yet there have been warnings that the pace of development by local companies could outstrip demand, causing a property glut.

Russia remains one of the few large, developed economies where international property investors are reluctant to tread. The perceived dangers are lack of liquidity, as the investment market is so young, and political risk, not least after the Yukos saga.

Source : Jim Pickard, Property Correspondent