Chinese Insurers Expected to Make $73B in Cross-Border Real Estate Deals

Insurance companies from mainland China can be expected to sharply increase their overseas acquisitions of real estate in the next few years, with these cross border property deals expected to total $73 billion by 2019, according to a report issued this week by Cushman & Wakefield.

The property consultancy’s prediction translates into a more than five-fold increase in the overseas real estate assets held by Chinese insurers at the end of 2014, which would make transactions such as Anbang Insurance’s $1.95 billion acquisition of the Waldorf Astoria hotel earlier this year a mere beginning to a multi-year trend.

Mainland Insurers Still Have Deep Pockets

Despite landmark investments such as the Waldorf Astoria, or China Life’s $1 billion investment into a US logistics portfolio last month, the shrewdly named report, “USD73bn Investment Bonanza by 2019: Chinese Insurance Outbound Capital,” points out that mainland insurers have only invested a fraction of their available assets into real estate in any market, including domestically, and have headroom to make many more deals.

Nigel Almond, research director at Cushman & Wakefield said, “For the largest five Chinese insurers, total allocations remain low and no greater than two percent, with some below one percent. 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 end of 2014 saw the total real estate holdings for Chinese insurance industry reaching $13 billion, which already made these institutional investors a significant new force in global markets. However, this amount only represented 0.8 percent of the industry’s total assets under management, well below the existing permitted allocation of 30 percent.

Deregulation Has Opened the Gates to Real Estate

A series of policy relaxations by the Chinese government has allowed expansive investment potential in the last six years. China’s mainland insurers were first permitted to invest overseas in 2012, and the China Insurance Regulatory Commission (CIRC) first permitted domestic real estate investment in October 2009.

Now Chinese regulations allow up to 30 percent of total assets to be invested in real estate and 15 percent into overseas investment, thus providing scope for accelerated investment.

Stock Market Churn Seen Driving More Property Deals

In addition to the changes in the regulatory environment, Cushman & Wakefield’s analysts believe that the recent instability in global equity markets, and the recovery of real estate values in many developed countries, will coax Chinese insurers into more overseas property deals.

The agency predicts that, over the next five years mainland insurers will increase their allocations of assets to overseas acquisitions by nearly 5 percent; putting another $73 billion into property markets.

Looking forward to 2024, Cushman and Wakefield expects continued growth which could lead to a further $75 billion in investment; taking holdings to $154 billion.

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 $100 million will follow. These include Singapore, Sydney and Tokyo in Asia Pacific, and in Europe, activity will expand to Berlin, Frankfurt, Munich and Paris.”

Lai also expects the North American markets of Chicago, Los Angeles, San Francisco, Toronto and Washington DC to see increased interest from Chinese buyers. More sophisticated insurers are expected to move into development projects in major gateway cities, and a broader range of property types.