Ping An Insurance

Chinese insurers set for more deals

With rules allowing them to invest 15 per cent of their assets overseas, Ping An's purchase of Lloyd's Building is just the start of a big wave

PUBLISHED : Monday, 22 July, 2013, 12:00am
UPDATED : Monday, 22 July, 2013, 2:51am

Ping An Insurance (Group)'s £260 million (HK$3.07 billion) purchase of the Lloyd's Building in London was the first direct overseas property acquisition by mainland insurance companies. It will not be the last.

Property experts say Chinese insurers have been actively exploring buying opportunities overseas since the China Insurance Regulatory Commission relaxed rules in October last year, allowing them to invest in other countries.

Deal action would heat up, they said.

Rasheed Hassan, a director of cross-border investment at British property consultant Savills, says Chinese insurance companies were mainly looking to invest in large headquarters office buildings that offered secure income and were centrally located in key global gateway cities.

Savills was involved in the Ping An acquisition.

The mainland's second-largest life insurer on July 8 announced the purchase of the iconic Lloyd's Building. The purchase translated into a net initial yield of 6.1 per cent.

"New York and London are the prime cities mainland insurance companies are eyeing as they have high liquidity and where international capital flows freely," said Humbert Pang, a managing principal and head of China of Gaw Capital Partners.

Gaw's US associate, Downtown Properties, brokered the Ping An deal.

According to Pang, various Chinese institutions, including insurance companies, have approached Gaw to look for buying opportunities.

He said the insurance companies were looking for office properties with stable yield of 6 to 7 per cent.

"It is very hard to make an estimation of how much capital will be invested by mainland insurance companies. Every deal has to be approved by the China Insurance Regulatory Commission," Pang said.

However, international consultant CBRE estimated US$14.4 billion of Chinese insurance capital would be poured into overseas real estate markets.

It expects Chinese insurance companies to emerge as a major buying force in overseas real estate markets in the near term.

In its report on Chinese capital tapping into overseas real estate markets, CBRE made its estimation based on the total assets of national insurance institutions at 7.4 trillion yuan (HK$9.3 trillion) last year.

There could be as much as US$180 billion in Chinese insurance funds available for domestic and overseas real estate investment, according to the regulation that insurers can invest only up to 15 per cent of their assets in property, the report says.

Chinese insurance companies, like most insurance funds in developed countries, would allocate less than 6 per cent of their assets or US$72 billion to direct property investment, CBRE said.

As the authorities only recently permitted Chinese insurers to invest in overseas real estate, CBRE said they would not put more than 20 per cent of the investable funds into the sector, which would equate to about US$14.4 billion.

In July and October last year, the CIRC issued new regulations that permitted insurance companies to invest a maximum of 15 per cent of their total assets in non-self-use real estate either in the domestic or overseas markets.

The rules also limited the companies to investing in "mature retail and office properties with stable income, located at the central areas of the major cities in 25 developed markets".

The rules also listed 20 emerging economies where the insurance companies can invest.

Savills said other mainland institutions and Chinese developers had also been expanding overseas.

"We have seen Gingko Tree [a British-registered wholly owned unit of China's State Administration of Foreign Exchange] acquiring high-profile securely let office properties in London and, interestingly, they have also ventured outside the London market to acquire an headquarters asset in Manchester," Hassan said.

"This could be a trend for other Chinese investors - once they have established a presence in the London market, they may look towards other tier-one cities in Britain."

There is also increasing interest in overseas property investment opportunities from Chinese developers, which are looking for large-scale developments that are predominantly mixed-use or residential.

This can be seen in China Vanke's joint venture with Tishman Speyer in the United States and also Dalian Wanda Group's £1 billion stake in a British yachtmaker and a London site to build Western Europe's tallest residential tower.