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Property investment funds typically use additional debt funding to enhance the return on equity and meet their targets.

According to a survey by the European Association for Investors in Non-Listed Real Estate Vehicles, known as INREV, only 69 percent of the approximate 40 billion euros raised in 2007 was invested, compared with 84 percent and 90 percent in 2006 and 2005.

The figures are based on a sample of 41 funds that together raised 8.6 billion euros last year, representing just over a fifth of INREV's total database of funds which were open for investment last year.

"If you consider the second-half of 2007 when the credit crisis started to bite, prices started to look more attractive as yields rose," INREV's research director Andrea Carpenter said in a statement.

"But with the accompanying increase in market uncertainty and the rising cost of debt especially opportunity funds had difficulty to invest," she said.

In February, INREV said unlisted property fund gearing probably peaked at a record 54 percent of total assets last year.

INREV said a larger sample of 85 funds also showed that 68 percent of the funds which were likely to seek more equity this year -- about half of the total -- expected to raise more capital in 2008 than in 2007.

Georg Allendorf, managing director at Deutsche Bank-owned RREEF Spezial Invest and a member of INREV's management board said there were several reasons for the continued optimism, not least because some investors were still switching from physical property investments into indirect real estate investments.

He also said European pension funds still wanted to raise their allocation to real estate, which had a solid track record as a hedge against inflationat a time when inflationary expectations were rising.

INREV said unlisted European funds generated a negative return of 3.9 percent in 2007, compared with a 21 percent gain in 2006. It blamed the strength of the euro as well as a poor performance by UK-focused funds.