Chinese insurers to spend $73B on global property market

From left: 717 Fifth Avenue and Anbang's Chairman Wu Xiaohui

Chinese insurers are expected to spend US$73 billion in acquiring overseas properties over the next five years as they speed up diversification, according to a research report published on Wednesday by real estate services firm DTZ/Cushman & Wakefield.

The report says the recent volatility in equity markets worldwide would prompt mainland Chinese insurers to accelerate their real estate investment strategy, diversifying away from domestic holdings.

“Major gateway cities will form the initial focus of activity. Current investments in London and New York underscore this move. Other leading cities will also regularly witness transactions of over US$100 million,” said Cristine Lai, an analyst at the Asia-Pacific forecasting team of DTZ/Cushman & Wakefield.

The major cities include Singapore, Sydney and Tokyo in the Asia-Pacific region. Property investment activity will expand to Berlin, Frankfurt, Munich and Paris, according to the team. The North American markets of Chicago, Los Angeles, San Francisco, Toronto and Washington will also attract high investment activity, she said.

Last year, the report said total real estate holdings accounted for 0.8 per cent, or US$13.4 billion, of Chinese insurance industry’s assets under management, well below the permitted allocation of 30 per cent. Just under half of this US$13.4 billion is estimated to have been deployed overseas.

“For the five largest Chinese insurers, total allocations remain low and no greater than two per cent, with some below 1 per cent,” said director and head of capital markets research Nigel Almond.

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Over the next five years, the report forecast, allocations are expected to grow from the current levels to nearly five per cent, with an additional US$73 billion poured into overseas real estate properties.

That will raise total overseas real estate investment from US$6 billion last year to US$79 billion by 2019, and to US$154 billion by 2024.

The report comes two weeks after China Life Insurance (Group) agreed to buy an office tower with retail space in Hung Hom from Wheelock & Co for HK$5.85 billion, in the single largest office-tower purchase in Kowloon district.

DTZ/Cushman & Wakefield said the 15 largest insurance companies are expected to take the lead in overseas investments, although smaller companies are also likely to follow in their footsteps as they grow their teams.

Chinese insurers’ rapid expansion into overseas real estate investment follows the China Insurance Regulatory Commission’s permission to allocate up to 30 per cent of total assets in real estate, half of it overseas, since October 2009.

Lai said more sophisticated insurers are also expected to move into development projects in major gateway cities.