81 Percent of China's Insurers Prefer to Invest in Real Estate

The future China Insurance Group headquarters in Shenzhen

China’s insurance funds have US$1.19 trillion invested, and more than three-quarters of them are looking for real estate deals to spend their cash on, according to a report last week by PricewaterhouseCoopers.

In a survey of executives at China’s insurance funds, the accounting firm found that 81 percent of respondents listed real estate as their first choice among industries to invest in, with finance and insurance, transportation and warehousing, and the production and supply of electricity, gas and water ranking behind real estate in that order.

And confirming a trend that has already manifested itself in purchases by Chinese insurers of real estate in major acquisitions by Chinese insurers, real estate also was the top choice for overseas investments, with 34.8 percent of respondents choosing international property as the top priority for investing outside of China.

Deals Happening Domestically and Internationally

“A number of insurers are seeking real estate projects overseas, with the US being their primary choice, since it has a relatively high price-to-rent ratio,” said Zhou Xing, a partner at PwC China. The biggest international investment by a Chinese insurer this year came when Ping An Insurance bought the Lloyd’s of London building in the UK for US$388 million.

Among overseas markets, 75 percent of respondents made the US their first choice, followed by 50 percent for Hong Kong and 40.63 percent preferring Europe.

Domestically, cash-strapped developer Shui On Land was able to sell two of its projects to insurers just this month. During the first week in December, the Shanghai-based firm sold the unfinished Corporate Avenue 2 project in Chongqing to Sunshine Life Insurance for RMB 2.4 billion (US$393 million), and later that same week sold its 5 Corporate Avenue project in Shanghai to China Life Insurance Group for RMB 3.32 billion ($545 million),

Real Estate Investment Trend May Expand in 2014

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.

Marc Giuffrida, Executive Director, Global Capital Markets with property consulting firm 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.”

In November last year the government raised the ceiling on overseas investments by Chinese funds to 15 percent of their assets. And in October this year 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.

Chinese offshore property investment rose 25 percent year-on-year at the end of the third quarter, amid Chinese investors’ growing appetite for overseas real estate deals, according to a recent report by Jones Lang LaSalle.