Taiping Life targets more foreign property

The Chinese insurer plans to buy more European and US real estate, reflecting a trend among mainland institutional investors. But such flows may be set to slow, suggests CBRE.
Taiping Life targets more foreign property

Shanghai-based Taiping Asset Management, which runs Taiping Life’s Rmb270 billion ($39 billion) investment portfolio, is keen on overseas property and aims to steadily raise its allocation.

This underscores continued healthy Chinese demand for foreign real estate despite high valuations and current restrictions on mainland capital outflows, noted property services firm CBRE. Such flows may start to slow, but insurers will remain among the most active allocators, said Yvonne Siew, executive director of CBRE Global Capital Markets

One of Taiping Life’s main property destinations is the US market, said Bob Zhang, chief risk officer at Taiping AM, which also manages Rmb170 billion for other Chinese insurers and institutions.

Taiping already invests in New York property, he told AsianInvestor. In 2015 it acquired the 111 Murray Street property in Tribeca in south Manhattan. The building is expected to be finished in November 2018, and 66% of it has been pre-sold, said Zhang, noting that dollar appreciation has helped boost the property’s value.

The insurer would also consider assets in cities like Boston, Chicago, Los Angeles, Miami and Washington. The London market is also interesting, he added, as are other cities in Europe, such as Berlin, Paris and Frankfurt. This reflects a growing tendency among mainland investors to look beyond the more obvious destinations.

Real estate remains a small proportion of Taiping Life's total assets, said Zhang, declining to provide a number. Most of the portfolio is in fixed income, with a large proportion accounted for by debt plans issued by insurance asset management firms, he noted. Indeed, Taiping does most of its property investment via real estate investment debt plans.

Mainland insurance firms can put up to 30% of their total assets into real estate – mainly infrastructure debt and real estate debt plans – but their allocations tend to be well below this threshold.

Mainland outbound flows to slow?

But allocations are seen to be rising, especially to foreign property. Asian outbound real estate investment was dominated by Chinese investors in 2016, accounting for nearly half (47% or $28.2 billion) of total flows, according to CBRE in research published late last month.

By contrast, foreign investment into Chinese commercial property plunged last year, with industry observers attributing the drop to high prices, renminbi depreciation and stricter capital controls.

Chinese investors remain active in deploying capital offshore into global real estate, despite recent policies by the government restricting Chinese outbound investment, said Siew.

However, greater scrutiny of cross-border capital flows and rigorous checks by the government may lengthen the approval process for such deals, she noted. As a result, Siew said, Chinese outbound real estate investment may moderate to a more sustainable level.

Mainland investors may start to opt for a higher number of smaller deals rather than doing larger transactions, she suggested.

America still calling

Reflecting Taiping Life’s investment strategy, the US was the most popular destination for Asian capital in 2016 for the second consecutive year, drawing 43% of the overall total, according to CBRE. It was followed by Europe, the Middle East and Africa, with 27%. Asia comprised 23% of flows from Asian investors, up from 21% in 2015.

New York surpassed London as the top metropolitan destination for outbound investment in 2016, but it contributed to a smaller share compared to 2015. The top five destinations – New York, London, Hong Kong, Seoul and Sydney – accounted for 37% of the total, a drop from 42% year-on-year, indicating that investment was spread across more diverse destinations.  

The sources of Asian capital seeking foreign property are also becoming more diverse, said Robert Fong, director of research at CBRE Asia Pacific.

“While China, Singapore, Hong Kong and South Korea are still the four major sources of outbound investment capital, we are seeing emerging activity from other markets, such as India,” he noted. Wong also pointed to an uptick in Japanese investment mostly targeting the US, though admittedly from a low base, and he expects that trend to continue.

Furthermore, 2016 saw more interest in niche sectors – student housing and healthcare in particular – by experienced Asian investors, according to CBRE. It was the first time that transactions were recorded in student housing, said the firm; three major deals were completed by Singaporean investors in 2016.

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