With over US$14 billion (S$17.84 billion) available for overseas property investment, Chinese insurance funds will likely target high transparency markets such as Singapore, Canada, US and the UK, revealed a CBRE report.
In fact, prime high-end office properties in core international cities are expected to be highly sought due to “scarcity of investable prime properties in first-tier Chinese cities and the short-term risk from the oversupply in second- and third-tier Chinese cities”, the report said.
While still new in cross-border real estate investment, Chinese institutional investors have ramped up investments in overseas property, on the back of local currency (RMB) appreciation, abundant liquidity, limited investment channels in China and the relatively lower valuation of overseas assets.
Notably, the total assets of China's national insurance institution amounted to US$1.2 trillion (S$1.53 trillion) in 2012. The new government policy allows these institutions to invest up to 15 percent of their total assets in “non-self-use” real estate.
“By this measure, there is in excess of US$180 billion (S$229.32 billion) currently available for real estate investment. Based on patterns of insurance fund allocations witnessed in developed countries in recent years (with most insurance funds typically allocating up to six percent of their assets to direct property investment) and assuming an 80:20 split between domestic and overseas market, it is estimated that Chinese insurers could invest up to US$14.4 billion (S$18.35 billion) in overseas real estate,” noted the report.
Responding, Marc Giuffrida, CBRE’s Executive Director, Global Capital Markets, said: “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.”
“The insurance industry, in particular, is thriving; buoyed by ever-increasing funds they will target gateway cities around the world such as London, New York, Toronto, Singapore and Sydney in increasingly large amounts. The low liquidity, value-added potential and stable cash flow of prime office and retail assets offers a perfect match for these investors,” he added.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email firstname.lastname@example.org