China firms to dominate domestic property buys-JLL

* Chinese firms to dominate domestic real estate investment

* JLL sees sovereign wealth fund investing in China property

* Global property market seen recovering in nine months

BEIJING, Sept 21 (Reuters) - Chinese firms will replace foreign investors as the main buyers of commercial real estate assets in the country over the next few years, Jones Lang LaSalle Inc (JLL.N) said on Monday.

State firms, insurers, national and provincial pension funds, the country's sovereign wealth fund and the State Administration of Foreign Exchange will likely all increase their spending on real estate, the global property service provider said in a report.

Between 2005 and 2007, foreign investors purchased almost 60 percent of prime en bloc real estate assets in China, it said.

However, more stringent approvals for inbound real estate investments since mid-2007 and the onset of the global credit crunch have contributed to a dramatic fall in foreign investment in Chinese property.

The domestic share of total property investment grew to 70 percent in the first half of 2009, up from 36 percent in 2008, according to Jones Lang LaSalle.

"We would expect the domestic companies to become more dominant, particularly in the investment market in China," said K.K. Fung, the firm's managing director for greater China.

The deregulation of the insurance industry could potentially channel 236 billion yuan ($35 billion) into the real estate market, if China allows its insurers to put 15 percent of their investment portfolio into property sector, Jones Lang LaSalle said.

That equates to more than twice the value of the Shanghai Grade A office market, it said.

China's new insurance law, effective in October, allows its insurers to invest in the real estate market. The regulator has yet to announce details of the new rule.

And China Investment Corp, the country's $300 billion sovereign wealth fund, recently demonstrated its desire to include real estate in its asset allocation.

For example, it gave money to Morgan Stanley's new global property fund, which will invest in China.

"It is possible that CIC will make some sort of investment in Chinese real estate," Jones LaSalle said in the report.

In the global market, transaction values have dropped 70-75 percent and prices are off 40-45 percent from the peak, said Colin Dyer, Jones Lang LaSalle's global chief executive officer and president.

"There is an emerging recovery in transaction activity and in some pricing in the investment sales markets," Dyer said, singling out London, Hong Kong, Seoul, Singapore and Paris.

However, it will take another nine months for the market to recover, he said. (Reporting by Langi Chiang and Jason Subler; Editing by David Cowell) ($1 = 6.828 yuan)