- Deregulation in China will cause exponential growth in overseas real estate investment
- Chinese insurance companies currently hold USD 13.4bn of investment property
- An additional USD 73bn of overseas investment is expected by 2019
- 2024 will see insurers taking overseas holdings to USD 154bn
Overseas real estate investment from the Chinese insurance industry is predicted to grow sharply in the next few years with USD 73bn expected to be allocated globally by 2019, according to a research report published today 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% of total assets to be allocated to real estate and 15% 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% of the industry’s total assets under management, well below the existing permitted allocation of 30%. This totalled just USD 13.4bn and underscores the potential for increased expansion in upcoming years.
Nigel Almond, research director at Cushman & Wakefield said: “For the largest five Chinese insurers, total allocations remain low and no greater than 2%, with some below 1%. Over recent years, investment activity has increased. This can in part be attributed to the liberalisation 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 USD 1.95bn and Ping An Insurance’s purchase of Tower Place in London for USD 520m 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%. This is equivalent to an additional USD 73bn of investment. By 2024, Cushman & 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 USD 75bn of investment, taking holdings to USD 154bn.
Cristine Lai, author of the Cushman & Wakefield report commented: “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 USD 100m 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.
Nigel Almond added: “Although an allocation of 10% 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%) and premiums (USD 235 per capita) in China compared to other more established markets underscores the potential for further rapid growth. Increasing overseas allocations from ca. 1% to 15% will not be easy, being the equivalent of investing over USD 240bn. The reality is likely to be more modest, though nonetheless significant.”