The private equity arm of Knight Frank is launching a $1 billion Indian housing fund.

Knight Frank has had over 600 agents advising in India for 12 years but this is the first time the partnership, one of the largest UK firms of property agents, is committing its own money and hoping to attract outside investments to a new fund managed by Rutley Capital Partners, its private equity arm.

Knight Frank's push to invest in India, is part of a multi-billion dollar flow of investment into the country led by the US private equity market.

Rutley, headed by Nick Burnell, is understood to have lined up investors from the UK, Australia, Hong and Singapore, for the first round of fundraising worth $300 million.

Rutley is expected to raise another $200 million of equity which with borrowings worth up to 50 per cent of the development costs will allow the fund to buy into $1 billion worth of housing and township projects.

The total value of the underlying investments the fund buys into could rise to $2 billion as the Rutley Indian Property fund intends to partner with local developers on projects building apartments for India's rapidly growing middle classes.

Rutley has projects held exclusively with agents totalling nearly $1billion, ready to complete once funding is raised, Mr Burnell said.

Rutley is looking to buy into Mumbai (Bombay) where high rents havep ut the city in the top ten most expensive office markets in the world, Chennai (Madras), Bangalore, Pune and cities around New Delhi.

Rutley's minimum project investment will be $10 million. Rutley is targeting a 20 per cent internal rate of return over the fund's seven year life.

The Indian development industy -the construction of new commercial, industrial and residential properties-is growing at least 25 per cent a year, according to a report from the Federation of Indian Chambers of Commerce & Industry and Ernst & Young. Foreign investment is expected to total $16 billion over the next six years.

Foreign investment in India topped $627 million between April and July this year, compared with $467 million for the whole of the previous year.

The biggest investors in India to date from overseas have included Morgan Stanley Real Estate Funds and Apollo Real Estate Advisors, the US private equity firm. Lehman Brothers, Blackstone and Carlyle are also taking an interest in the country.

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