Overseas real estate investment from the Chinese insurance industry is expected to grow sharply to $73bn by 2019, according to a research report published today by Cushman & Wakefield.
The report noted a series of deregulation moves by the Chinese government in the past six years. The China Insurance Regulatory Commission (CIRC) first permitted domestic real estate investment in October 2009; before this, companies were only allowed 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.
At the end of 2014 total real estate holdings for Chinese insurers at $13.4bn accounted for only 0.8% of the industry's total assets under management, well below the existing permitted allocation of 30%, the report said.
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."
The report highlighted three notable transactions in the past two years: the purchase of the Waldorf Astoria hotel in New York by Anbang Insurance for a $1.95bn (IAR, 7 October 2014, Chinese insurer buys Waldorf Astoria New York) and Ping An Insurance's purchase in January 2015 of Tower Place in London for $520m, following its purchase of the Lloyd's of London building in 2013 (IAR, 6 May 2015, Asian insurers step up European real estate investments).
The recent increased volatility in equity markets worldwide will cause mainland Chinese insurers to accelerate their real estate investment strategy, and overseas markets will diversify away from domestic holdings, according to the report. The largest 15 insurance companies in China are expected to take the lead in overseas investments, although smaller companies are predicted to follow as they expand their teams.
In the next five years, allocations are anticipated to increase from their current levels to near 5%, according to Cushman & Wakefield. This is equivalent to an additional $73bn of investment.
By 2024, the real estate services company 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 $75bn of investment, taking holdings up to $154bn.
"Major gateway cities will form the initial focus of activity," Cristine Lai, author of the Cushman & Wakefield report commented. "Current investments in London and New York underscore this move, and other leading cities which regularly witness transactions over $100m will follow."
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 ($235 per capita) in China compared to other more established markets underscores the potential for further rapid growth."
But he acknowledged that increasing overseas allocations from about 1% to 15% will not be easy, being the equivalent of investing more than $240bn. "The reality is likely to be more modest, though nonetheless significant."