China’s insurers have gained worldwide attention for their real estate purchases in New York and London over the last two years, but a soon-to-be disclosed deal in Shanghai shows that these financial giants are also playing a growing role in the country’s domestic property market.
Ping An Insurance, one of the sector’s biggest firms, is said to be wrapping up a deal to buy the GC Tower, a 59,000 square metre office building in Shanghai’s Pudong financial district for RMB 2.24 billion ($361 million), according to industry sources familiar with the transaction.
Changes in China’s regulation of its insurance industry in recent years has freed companies like Ping An to invest more of their funds in real estate both at home and abroad, while the country’s slowing economy has also spurred these institutional investors to make more property acquisitions in search of yield.
Local Developer Sells Office Tower
Until Ping An’s purchase goes through, the GC Tower is still owned by local developer Shanghai Gezhouba Yangming Land, which completed the 30-storey building on Yuanshen Road in Pudong’s Zhuyuan area in December 2009.
Ping An’s offer for the building – which has 44,743 square metres of grade A office space – includes RMB 1.72 billion in cash, plus the assumption of a RMB 520 million loan.
The price per square metre for the GC Tower transaction works out to considerably less than the RMB 89,000 per square metre that Shui On Land is said to be getting for its Corporate Avenue phase one project in Shanghai’s Huangpu district. The transaction rate is also well below the RMB 65,000 per square metre that Li Ka-shing’s Cheung Kong Holdings and Hutchison Whampoa received for the Oriental Financial Centre in Pudong’s Lujiazui area in 2013.
GC Tower is located close to Pudong’s Century Avenue metro station, and is home to a number of national-level Chinese enterprises, including CCB Life, Hongyuan Securities, Guolian Securities and the state electrical authority.
According to property consultancy JLL, which is representing Shanghai Gezhouba Yangming Land in the sale, the GC Tower is nearly 100 percent occupied at this time. Figures from Cushman & Wakefield show rentals in the property averaging RMB 7.5 per square metre per day for whole floors leased in the middle zone of the building. By contrast, rents in nearby Lujiazui average RMB 12.1 per square metre per day for equivalent space.
JLL began marketing the property in November of last year.
Regulatory Changes Bring Insurers into the Real Estate Market
Ping An’s pick up of the GC Tower is just the most recent acquisition by the insurer, which already has more than RMB 500 billion ($80.5 billion) in assets under management. Already this year the Shenzhen-based firm bought an office tower in London for $490 million, and teamed with competitor China Life in a $500 million Boston real estate joint venture with US developer Tishman Speyer.
The company was one of the first of China’s insurers to head overseas when it bought the Lloyd’s of London building in 2013 for $388 million. Since that time several of Ping An’s competitors have begun adding trophy real estate assets to their portfolios, including Anbang Insurance’s 2014 acquisition of New York’s Waldorf Astoria Hotel for $1.95 billion.
This wave of property investments by China’s insurance companies has been building gradually since 2013, when the China Insurance Regulatory Commission (CIRC) announced that it would allow insurers to put up to 30 percent of their total assets into real estate and infrastructure, up from the previous 20 percent.
Ping An itself said last month that it was “just getting started” on building its real estate portfolio, which no doubt is welcome news to real estate developers both in China and globally.