UPDATE 1-Australia's Stockland lifts Australand takeover bid
* New Stockland offer values Australand at A$2.5 bln
* Takeover would make country's biggest residential property firm
* Australand considering offer (Adds new offer price, context on bid)
SYDNEY, May 28 (Reuters) - Australia's No. 2 property group Stockland Corp Ltd on Wednesday upped its offer for Australand Property Group to A$2.02 billion ($1.87 billion), a month after threatening to walk away if the target rejected its original bid.
The revised takeover would value Australand at A$2.5 billion and would create Australia's largest residential business at a time of record low interest rates and booming house prices in key markets such as Sydney.
Stockland, which already owns 19.9 percent of Australand, increased its offer for the rest of Australand by 3.6 percent to A$4.35 per share from A$4.20 per share.
Australand shares closed at A$4.26 on Tuesday.
Australand has been seen as a takeover target since Singapore's CapitaLand Ltd announced plans to sell what was a 59 percent stake in early 2013, while Stockland was seen as a likely buyer in its quest to become one of Australia's biggest property companies.
A month ago, Australand rejected Stockland's original bid as undervalued and said it would refuse Stockland access to due diligence.
In a quarterly briefing days later, Stockland managing director and chief executive Mark Steinert indicated he may walk away from Australand, saying "if price expectations are too high we are quite prepared to sell down our holding and realise a profit".
Steinert said in a statement on Wednesday that Stockland made the revised final offer after "dialogue" with Australand.
He called however for the Australand board to "engage with us, provide targeted due diligence and ultimately allow us to put this proposal to Australand security holders".
Joining the companies would create a five percent increase in annual earnings, he added.
In a statement to the Australian Securities Exchange, Australand said it had not formed a view on the revised offer. ($1 = 1.0815 Australian Dollars) (Reporting by Byron Kaye; Editing by Stephen Coates)