Chinese insurers could invest over $14 billion in global real estate markets over the next several years, according to a recent survey by the CBRE Group.
The study shows that Chinese insurers are particularly interested in properties in the UK, US, Canada, Singapore and Australia, although will consider markets closer to home, such as Hong Kong, Singapore, Malaysia and Thailand.
Chinese insurance companies are behind their regional peers – namely pensions and sovereign wealth funds – when it comes to investing in foreign real estate.
But in the current low-yield environment, many are seeking alternative ways to generate returns to meet their liabilities. Offshore property investments can offer an attractive option, the survey found.
New regulations passed by the China Banking Regulatory Commission allow for Chinese insurance companies to invest up to 15% of their assets in “non-self use” offshore real estate.
The Chinese insurance industry stands at some $1.2 trillion in total assets. That would mean there is in excess of $180 billion available for real estate investment, by CBRE calculations.
Based on historical allocation patterns – mainland insurers typically allocate up to 6% of their portfolio in direct properties – and assuming an 80:20 split between domestic and overseas markets, CBRE estimates that Chinese insurers could invest $14.4 billion in overseas real estate in the next few years.
The real estate firm notes that given the “scarcity of investible prime properties in first-tier Chinese cities, and the short-term risk from the oversupply in second- and third-tier Chinese cities, prime high-end office properties in core international cities are expected to be highly sought after”.
And Chinese insurers, with a “thriving” industry, will undoubtedly take their “ever-increasing funds [and] target gateway cities around the world such as London, New York, Toronto, Singapore and Sydney in increasingly large amounts”, according to Marc Giuffrida, executive director of global capital markets at CBRE.
Adds Frank Chen, head of research: “Most of the Chinese investors with sufficient capital are now facing limited domestic investment channels. Factor in the escalating purchasing power enabled by the continuous appreciation of the RMB and now is the ideal time for Chinese capital to enter the overseas market.” This is true not only for institutional investors, but also individuals, he adds.