Chinese insurance industry will invest USD73 billion in global real estate bonanza by 2019


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Overseas real estate investment from the Chinese insurance industry is predicted to grow sharply in the next few years with USD73 billion expected to be allocated globally by 2019, according to a research report by Cushman & Wakefield.

A series of successive deregulation policies led by the Chinese government has allowed expansive investment potential in the last six years. China Insurance Regulatory Commission (CIRC) first permitted domestic real estate investment in October 2009 and prior to this, companies were only able to own properties for self-use. In contrast, today’s regulations allow up to 30 per cent of total assets to be allocated to real estate and 15 per cent in overseas investment, thus providing huge scope for accelerated investment.

The end of 2014 saw the total real estate holdings for the Chinese insurance industry account for only 0.8 per cent of the industry’s total assets under management, well below the existing permitted allocation of 30 per cent. This totalled just USD13.4 billion and underscores the potential for increased expansion in upcoming years.

Nigel Almond, research director at Cushman & Wakefield, says: “For the largest five Chinese insurers, total allocations remain low and no greater than 2 per cent, with some below 1 per cent. Over recent years, investment activity has increased. This can in part be attributed to the liberalization of foreign investment, which allowed top players to accelerate real estate acquisitions, as well as growth in the value of assets under management.”

Two notable transactions in recent years were the purchase of the historic Waldorf Astoria hotel in New York by Anbang Insurance for a record USD1.95 billion and Ping An Insurance’s purchase of Tower Place in London for USD520m a year, after its pioneer purchase of the Lloyd’s of London building in 2013.

The recent increased volatility in equity markets worldwide will cause mainland insurers to accelerate their real estate investment strategy, and overseas markets will diversify away from domestic holdings. The largest 15 insurance companies are expected to take the lead into overseas investments, although smaller companies are predicted to follow as they grow their teams.

Over the next five years, allocations are anticipated to grow from their current levels to near 5 per cent. This is equivalent to an additional USD73 billion of investment. By 2024, Cushman and Wakefield expects exponential growth to continue through a combination of increased allocations and a growth in assets under management. This could potentially lead to a further USD75 billion of investment, taking holdings to USD154 billion.

Cristine Lai, author of the Cushman and Wakefield report, says: “Major gateway cities will form the initial focus of activity. Current investments in London and New York underscore this move and other leading cities which regularly witness transactions over USD100m will follow. These include Singapore, Sydney and Tokyo in Asia Pacific, and in Europe, activity will expand to Berlin, Frankfurt, Munich and Paris. The North American markets of Chicago, Los Angeles, San Francisco, Toronto and Washington DC will also attract high investment activity.”

Investment is expected to later broaden into other cities and a broader range of property types. More sophisticated insurers are expected to move into development projects in major gateway cities.

Almond adds: “Although an allocation of 10 per cent is not unrealistic compared to other institutions globally, in reality we would expect growth to come through increased premiums. The existing low insurance market penetration (3.2 per cent) and premiums (USD235 per capita) in China compared to other more established markets underscores the potential for further rapid growth. Increasing overseas allocations from ca. 1 per cent to 15 per cent will not be easy, being the equivalent of investing over USD240 billion. The reality is likely to be more modest, though nonetheless significant.”

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