Cash-rich Chinese insurers target €10b of overseas property: CBRE

Chinese insurance funds have more than $14 bn (€10.6 bn) available for overseas real estate investment, according to CBRE.

Markets characterised by a high level of transparency such as the UK, US, Canada, Singapore, Hong Kong, and Australia are expected to be among the key targets, according to the latest research from the global property advisor.

Given the current scarcity of investable prime properties in first-tier Chinese cities and the short-term risk from oversupply in second- and third-tier Chinese cities, prime high-end office properties in core international cities are expected to be highly sought after, especially considering the attractive yields they can produce in today’s low interest rate environment.

Chinese institutional investors are still relative newcomers to cross-border real estate investment strategies, compared to pension funds, insurance funds and sovereign wealth funds from other regions. However, in recent years Chinese institutional investors have started to increase their investment in overseas real estate markets.

This trend has been driven by several factors, including limited investment channels in China, abundant liquidity, local currency (RMB) appreciation, and the relatively lower valuation of overseas assets in the years following the 2008 financial crisis.

In 2012, the total assets of China’s national insurance institutions stood at $1.2 tln. New regulations permit these institutions to invest up to 15% of their assets in 'non-self-use' real estate. By this measure, there is in excess of $180 bn currently available for real estate investment.

Based on patterns of insurance fund allocations witnessed in developed countries in recent years (with most insurance funds typically allocating up to 6% of their assets to direct property investment) and assuming an 80:20 split between domestic and overseas market, it is estimated that Chinese insurers could invest up to $14.4 bn in overseas real estate.

Marc Giuffrida, executive director of global capital markets at CBRE, commented: 'Chinese insurance institutions are already well established in domestic markets, but following a series of government policy changes, they will look to target overseas commercial real estate markets. The insurance industry, in particular, is thriving; buoyed by ever-increasing funds they will target gateway cities around the world such as London, New York, Toronto, Singapore, Hong Kong and Sydney in increasingly large amounts. The low liquidity, value-added potential and stable cash flow of prime office and retail assets offers a perfect match for these investors.'