UPDATE 1-CITIC in talks on Macquarie China property -sources

* 16,000 square-metre Shanghai project for $37 million

* Macquarie also in talks with others

* No deal is inked yet (Adds quotes, details and background)

By Samuel Shen and George Chen

SHANGHAI/HONG KONG, April 20 (Reuters) - CITIC Capital Holdings Ltd, an investment arm of China's largest financial conglomerate CITIC Group, is in advanced talks with Australian bank Macquarie (MQG.AX) to acquire a top-end Shanghai property, two people familiar with the situation said on Monday.

CITIC Capital's real estate arm is close to buying City Apartments (www.cityapartments.com.cn), a 16,000-square-metre residential development in downtown Shanghai for about 250 million yuan ($37 million).

Disagreements over purchase conditions, however, could still result in a collapse of the deal, the sources said.

Although the transaction is relatively small, the discussions have been going on for months, underscoring the difficulty faced by western banks looking to exit their investments as the real estate market cools in Shanghai.

Macquarie, which has been active in China's real estate markets in the past few years, is also in talks with other potential buyers for the Shanghai project, said one of the sources, declining to name other potential buyers.

"The project has been put for sale in the market for a while, so it is actually a very interesting deal for people in the industry to get a sense of how the market environment is," said the source, referring to the deal price.

China's eight-year-old real estate boom ended in 2008 with prices and trading volumes falling, under pressure from the global financial crisis.

Last year, Morgan Stanley (MS.N) started selling two high-end residential properties in Shanghai, but has so far not secured a buyer. (For details: [ID:nSHA23929])

Macquarie bought City Apartments in 2005 and put the project up for sale last year with an initial price tag of 26,000 yuan per square metre, while CITIC Capital may now pay about 16,000 yuan per square metre for the property, the sources said.

A spokesman for Macquarie declined to comment. CITIC Capital could not be immediately reached for comment.

Hong Kong-based CITIC Capital, half owned by steel-to-property conglomerate CITIC Pacific (0267.HK), in January said it had raised $400 million for its third real estate fund that targets China's property market.

CITIC Capital, often dubbed by Chinese media as China's Blackstone, currently manages more than $1.6 billion in assets.

Some foreign investors are selling properties in China as prices in top-tier Chinese cities such as Shanghai fall sharply, while others, such as Goldman Sachs (GS.N) and Blackstone Group LP (BX.N) remain optimistic about the country's real estate market in the long term.

Blackstone would not slow its investments in China despite the global financial crisis, as high economic growth and low valuations promised good returns, the private-equity firm's Greater China Chairman Anthony Leung said last November. [ID:nSHA265898].

Goldman Sachs (GS.N) has said it sees China as a top pick in Asia's property market after Japan, partly as a result of China's growing urbanisation. (US$1=6.832 Yuan)

(Editing by Chris Lewis)