Liberalisation of Asian insurance regulations could lead to $75bn in new capital entering global real estate markets, according to CBRE.
A new report predicts that real estate investments – both direct and indirect – held by insurance companies, including those from China, South Korea and Taiwan, will rise from $130bn in 2013 to $205bn in 2018.
Ada Choi, senior director for CBRE Research, said: “Asian countries have identified the need to catch up with international standards, increasing the flexibility and diversification of insurance funds’ investment portfolios. This is coupled with the change in the return profile of other asset classes after the global financial crisis.”
She added: “Most notable is the substantial decline in bond yields globally – which impact insurers’ returns on fixed income assets, the dominant component of the portfolios of most insurance firms. Globally, we have seen the desire to deploy capitals in the real estate market by institutional investors. In particular, they have strong preference for core assets which provide a stable income stream, natural hedge against inflation and long-term investment horizon.
“However, it remains challenging to find such assets in Asia as quite a lot are held by developers and some domestic markets are small. Taiwanese insurers already own about one third of all Grade-A office assets in Taipei. Thus, the regulators are needed to release such capital deployment pressure on the local market by opening foreign markets.
“We expect that further relaxation on overseas real estate investment will take place as regulators gain more confidence about overseeing such investments and insurance firms become savvier about investing globally.”
According to the insurance regulators in 10 Asian jurisdictions, total insurance assets reached the level of $6.7trn in Asia at the end of 2013, higher than the $5.8trn in the US and $3trn in the UK. Japan is the largest insurance market by assets, controlling $3.3trn of assets while the rest is largely held by insurers in China, South Korea and Taiwan. These four countries collectively control about 90% of the insurance assets in Asia.
Marc Giuffrida, executive director in CBRE’s Global Capital Markets team, said: “Asian insurance companies have seen the positive results pension plans and sovereign funds have achieved from increasing their exposure to global real estate.
“Importantly there is now evidence and precedence in place both regulators and investment committees can point to, which may relieve concerns around the risk/return trade-offs.”