Bank of America (NYSE:BAC) Decides to Keep Merrill Lynch Asia Property Funds Business

Bank of America (NYSE:BAC) has changed its mind concerning getting out of the Asia property funds business it inherited when it acquired Merrill Lynch, saying it will now help raise capital for the unit as the Asian real estate sector rebounds.

I find this an interesting development because some believe the Asian real estate market – China specifically – could be a bubble ready to burst. That would be an untimely blow to Bank of America if that ends up being the case.

That’s extremely important to note because the Asia Real Estate Opportunity Fund has China as its major focus in the region for its strategy. So what happens to real estate in China will largely determine the performance of the fund and unit.

Other countries the fund invests in are Japan, Singapore, South Korea and India. The Singapore real estate market has been hot lately, so possibly the fund will start allocating more resources there, although reports seem to indicate they’re going to continue to look heavily to China real estate as the chief focus of the fund.

China itself has concerns over asset bubbles in the country heating up and have tightened up credit in order to limit capital which would be used to acquire real estate in the country.

Some institutional investors are waiting to see whether the strategy will work or not and how it will affect real estate prices. If it pushes prices down in China, then it will be considered a buying opportunity and investors will respond accordingly, including the Asia Real Estate Opportunity Fund launched by Merrill.

According to a Reuter’s report, the value real estate transactions in Southeast Asia have risen by 25 percent over the last quarter of 2009 from the quarter before, driving more interest from institutions and making the Merrill fund more attractive than it had been 6 months ago when Bank of America was trying to sell it to a number of private equity corporations, which weren’t able to come to agreement on terms for the deal.

That inability to make a deal could end up being a boon for BofA, although it could make them look bad if Chinese real estate continues to soar in price and opportunities to make money on property dries up for some time to come.

Either way, Bank of America has decided to keep the Asia Real Estate Opportunity Fund and has committed to trying to make it even more profitable, although they put it on the block because it wasn’t considered part of their core business.