A Chinese state company has tapped Sun Hung Kai Properties Ltd and Guoco Group Ltd as potential investors for a fund that aims to raise up to 20 billion yuan ($3.1 billion) to develop Shanghai's Bund district, a source said on Thursday.

The Shanghai Bund Investment Group, tasked with developing the city's most photographed waterfront, aimed to raise up to 3 billion yuan in the first batch by the end of this year, the person familiar with the plan said.

There's interest in investing in the project, but no decision has been made yet, the person said.

The fund was likely to take the form of a partnership, with the Bund Investment Group holding a 30 percent stake, added the source, declining to be identified as he was not authorised to speak to the media.

Sun Hung Kai, Guoco and Shanghai Bund Investment were not available for comment.

The famed Bund district in Shanghai, known as Pearl of the Orient, falls within the city's former international settlement, where many foreigners lived during the pre-Communist era and was home to some of the city's top banks and hotels.

Many of these buildings were later converted to government buildings after Mao Zedong's communist party came to power in 1949, but banks and hotels began returning following economic liberalisation beginning in the 1980s.

Top Chinese and foreign banks such as Bank of China and ICBC all own properties in the district, standing alongside well-known hotels, such as the Peace Hotel.

China had been trying to cool its red-hot property property sector for much of 2010, implementing measures, such as limiting home buyers to one new apartment, imposing new taxes and raising interest rates and bank reserve ratios.

Shanghai and Chongqing are among those targeted by the latest moves, with the government imposing a tax on luxury homes that has so far had little effect on cooling prices in an economy where people have few other investment avenues.

China's top five banks have scrapped mortgage rate discounts for first-time home buyers in Beijing, official media reported on Thursday, the latest move to cool prices.

Shares of property developers have been hit in the process with Sun Hung Kai shares down over 6 percent so far this year, worse than the 2 percent decline on the benachmark Hang Seng Index