AXA Real Estate Investment Managers said Monday it signed a memorandum of understanding with Ping An Trust to co-invest in developing high-end residential projects in China.

This is AXA REIM's first foray into Chinese real estate. The firm, the property arm of French insurer AXA SA, has previously invested in property funds in the region as well as in properties in Japan. The cooperation may lead to a US$500 million dedicated Chinese real-estate fund, AXA said.

"AXA REIM's strategy remains committed to the Asian continent. It is a strong believer in the need to have local expertise to access local real-estate markets," Pierre Vaquier, AXA REIM's chief executive, said in prepared remarks.

AXA REIM said it will be focusing on middle to upper-class residential projects, citing China's young and growing population, rising incomes and low mortgage penetration rates.

Unlike investing in affordable housing, investing in the middle class allows for innovative designs and better margins.

"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," said Frank Khoo, who was hired by AXA REIM last year to lead its expansion into the region.

AXA REIM said it started preparations to enter the China residential property markets earlier this year when it started to anticipate signs of recovery. The company is confident of a broader market recovery in the medium to longer term.

AXA REIM has more than EUR40 billion in assets under management, making it the largest real-estate fund manager in Europe and the fourth largest in the world.

-By Ellen Sheng, Dow Jones Newswires; 852-2832-2336; ellen.sheng@dowjones.com