In a statement filed with the Singapore stock exchange, Capitaland said the fund would acquire the developer's 55.9 per cent stake in the completed Raffles City project in Shanghai and all its projects in Beijing, Chengdu and Hangzhou.

The five-year-old Raffles City Shanghai comprises grade A offices and a shopping centre. The other three will be completed between next year and 2012.

Raffles City China Fund will be CapitaLand's largest and first integrated development private equity fund on the mainland.

The developer will own 50 per cent of the fund and the rest by financial institutions and pension funds in Asia, Europe and North America. It did not name any investors.

CapitaLand said it would reduce its stake to 45 per cent if demand warranted.

The fund could close in December and the size may reach up to US$1.3 billion by year-end.

Lim Ming Yan, the chief executive of CapitaLand China Holdings, said: 'As China's urbanisation gathers pace and its middle class grows in tandem with the improving economy, demand for integrated developments will rise.'

Jim Yip Kin-shing, the head of the investment department at DTZ (North China), said CapitaLand was good at setting up private equity funds to invest in their own projects.

'It could improve shareholders' return and CapitaLand will have extra money to develop more projects.' Mr Yip said. 'It could also reduce investment risk.'

The mainland property market has slowed in recent months since the central government adopted measures to prevent overheating in October last year, prompting developers to seek ways to spread risks.

Sun Hung Kai Properties brought in Henderson Land Development and Wharf Group into its residential and commercial complex in Chengdu last week.

Shares of CapitaLand dropped 1.07 per cent to end at S$5.54 (HK$32.06) yesterday.