* Piramal, CPPIB to invest $250 mln each
* Fund to focus on rupee debt financing for residential projects
* Have identified projects for lending, to announce by March - exec
(Adds details, comments, background)
MUMBAI, Feb 12 (Reuters) - India's Piramal Enterprises Ltd said it will join with Canada Pension Plan Investment Board (CPPIB) to set up a $500 million fund to finance residential property projects in India.
The deal highlights growing interest by global funds in India's real estate sector on the back of a persistent housing shortage.
Long-term demographic changes - urbanisation, rising incomes and more nuclear families - are transforming how and where people live in Asia's third-biggest economy.
Singapore's GIC Pte Ltd, Temasek Holdings and Oman's State General Reserve Fund last year agreed to invest $200 million in a sector fund by Indian mortgage lender HDFC Ltd , while Qatar Investment Authority is also said to be in talks to invest a similar amount in residential property.
Piramal and the Canadian public pension fund will invest equally in the venture, which will focus on providing project-level debt to local developers in Mumbai, New Delhi, Bangalore, Pune and Chennai, the Indian company said.
The partners have already identified projects for lending under the venture, and an announcement will be made by March, Khushru Jijina, a group executive, told reporters.
The average rate for lending under the alliance is expected to be 20 percent, he added.
Weak equity markets in a slowing economy and restrictions on lending by banks to the sector are pushing India's real estate developers to find other modes of financing.
"This is an opportune time to be creating an aligned pool of capital to target what we believe to be very compelling financing opportunities in the real estate sector," Ajay Piramal, chairman of the Indian company, said.
The diversified Piramal group launched its financial arm in 2011 with a focus on the real estate sector and already operates a real estate-focused private equity arm, which manages about 43 billion rupees ($691 million) across several funds.
Piramal has been diversifying after it sold its India drugs business to U.S.-based Abbott Laboratories for $3.72 billion in 2010 and its diagnostic services unit to Super Religare Labs for about $132.6 million.
It owns an 11 percent stake in Vodafone India Ltd, the country's second-biggest phone carrier, and is also rumoured to be interested in picking a stake in Shriram Capital, among the 26 companies to apply for a new bank licence with the Reserve Bank of India.
Last year, CPPIB made its first foray into India's property market after investing $200 million in a real estate joint venture with India's Shapoorji Pallonji Group. ($1 = 62.27 rupees)
(Writing by Prashant Mehra; Editing by Kim Coghill)