The deal follows a tortuous sale process that faltered in September as global financial turmoil caused outside debt funders to pull out of talks and means RBS retains greater exposure to the loans for longer than it hoped.

The loans will be put into a jointly owned vehicle in which the state-owned bank will hold a 75 percent equity stake that it will sell down by the end of 2013, the person said. US private equity giant Blackstone, backed by China Investment Corporation, will take a 25 percent equity share and manage the properties.

The underlying assets, which number 29, were deemed riskier to the bank because they were outside so-called prime locations and have higher loan-to-value ratios, a calculation that measures debt held over a property against its value.

The vehicle bought the loans at a discount of about 30 percent and both sides stand to benefit once they are securitised or sold.

RBS initially sought third-party debt funding of about 60 percent for the deal, code named Project Isobel, as part of an attempt to reduce its estimated 80 billion pounds property exposure following a government bailout during the credit crisis.

Talks faltered after RBS failed to secure backing from Goldman Sachs, Citi and HSBC and the bank will now fund the deal with its own debt of 550 million pounds.

Blackstone was not initially comfortable investing in a vehicle in which RBS held a more powerful position through holding both debt and equity positions, another source close to the process told Reuters in October.

The deal took longer to complete than anticipated as both sides then unsuccessfully sought funding from other outside sources including hedge funds.

Lloyds Banking Group, another UK state-controlled bank, is in talks with private equity group Lone Star to sell a one billion pound property loan portfolio.