Real Estate Crisis Creates Takeover Opportunity for China’s Insurers

While China’s real estate industry has been beset by reports of falling prices and slowing sales all of this is apparently good news for the country’s insurance companies, as two of the financial giants compete to take over developer Gemdale Corporation.

According to a report in the South China Morning Post, Sino Life Insurance and Anbang Insurance have been buying up shares in Gemdale in a bid to establish control over the leading real estate firm.

By April 26th, Sino Life had bought up 20 percent of Gemdale, and Anbang had acquired 15 percent. Both insurers had bought up their stakes through secondary-market purchases, after the company’s stock had slid late last year due to concerns over developer liquidity in the midst of China’s slowing property market.

Gemdale shareholders appear to be the primary beneficiaries of this battle so far, with the company’s stock having climbed as high as RMB 10.22 per share on April 25 since hitting a low for this year of RMB 5.82 per share in January. The Shanghai-listed stock closed on Thursday at RMB 7.77 per share, despite recently reporting a profit drop of 73 percent for the first quarter (compared to the same period last year).

Insurers Shifting from Assets to Companies

In recent months China’s insurers have emerged as some of the most aggressive buyers of real estate assets, and now they appear to be going after an entire company.

In December last year China Life Insurance Group acquired the 5 Corporate Avenue project in Shanghai from developer Shui On Land for RMB 3.32 billion ($545 million), after another insurer – Sunshine Life Insurance – had purchased Shui On’s Chongqingtiandi project for RMB 2.4 billion the previous week.

A survey last year by financial consulting firm PricewaterhouseCoopers found that 81 percent of China’s insurance funds were looking for real estate deals to spend their cash on.

Regulatory Changes Allowing More Room for Insurers

The interest in real estate investment among China’s insurers is fueled in part by changes in regulations regarding what percentage of their funds these companies are allowed to devote to alternative investments such as property.

In November of 2012 China’s government raised the ceiling on overseas investments by Chinese funds to 15 percent of their assets. And in October of 2013 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.