Peter Mitchell discusses the growing interest among Chinese insurers for non-domestic real estate investments.
There has been much discussion about Chinese investors looking to get into offshore real estate investment. High-net-worth individuals, developers and money managers have been investing in the US and the UK (London to be precise), and insurers, such as Ping An, have made some acquisitions. Recently, Asia has become a major source of global capital, with China expected to be a major investor in future.
The capital is coming from a variety of investors. In addition, there are the QDII licensed invest- ment managers who have quotas set by the government to invest funds offshore.
In real estate, the investments tend to be in securities. There are over 110 QDII licensed entities.
A large proportion is investment companies but, at this stage, only a handful are investing in offshore real estate. However, we expect this to increase.
Early last year, APREA hosted one such group in Australia, whose focus is on investment in public and private funds in the US and Australia.
A new source of capital for global real estate is Chinese life companies, which have only recently been given permission to invest in real estate, and to invest offshore. In 2012 the regulator issued new regulations permitting insurance companies to invest a maximum of 15% of their total assets in non-self-use real estate, either domestically or in overseas property markets.
The new rules limit investment to “mature retail and office properties with stable income, located in the central areas of the major cities in 25 developed markets”, and also list 20 emerging economies where companies could invest.
Last year, Ping An Insurance (the country’s second largest) became the first insurer to invest directly into foreign real estate, with its acquisition of the Lloyd’s Building in London. Another major insurer, Taikang, has been reported as saying it is studying investment opportunities overseas, with preferred locations in North America and European countries, such as Germany.
Life companies are still working on their strategies, by and large in a very focused and sophisticated manner. APREA hosted a mission of six life companies to Australia in November 2013. They had a mixture of possible strategies, embracing real estate investment trusts, private funds and direct investment, with thoughts varying from company to company. The delegation included most of the major life companies in China, including Taikang Asset Management, Sunshine Insurance Group, China Pacific Insurance Company and New China Life.
These companies came very well prepared. Although they are new to real estate and to foreign markets, they had done extensive homework about Australia and the parties we had arranged for them to meet. They were impressive with the way they had structured their strategic planning and in their analyses of the differences between the local market and the offshore markets. The mission was such a success that APREA might host more Chinese institutional investor missions to other markets during the year.
In addition to these institutional investors, high-net-worth individuals cannot be overlooked.
For example, one group in China manages the funds of 40,000 high-net-worth individuals, with assets under management expected to climb to $90bn (€65.6bn) during 2014. Its investments have largely been domestic, but strategies are being developed for investment in offshore real estate.
We can expect to see strategies of a number of the major life companies an d other institutional investors crystallise in the next 12 months or so, most likely leading to a significant amount of additional capital invested in foreign real estate.
Peter Mitchell is CEO of APREA