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Peggy Sito

The surprise retreat by mainland insurer Anbang from what looked like a done deal to buy Starwood Hotels & Resorts Worldwide for US$14 billion, which handed the operator of the Sheraton and Westin hotels to US giant Marriott International, doesn’t mean that deep-pocketed Chinese insurance groups will be exerting less influence on the global real estate market.
Mainland insurance companies started expanding into overseas real estate in 2012 to diversify their investments, when regulations were eased that year to permit investment in mature real estate properties in prime locations abroad.
China’s Ping An Insurance plans more overseas investment in properties and logistic real estate
The China Insurance Regulatory Commission (CIRC) allowed insurers to invest up to 15 per cent of their total assets overseas, including into money markets, private equity and real estate.
Since then a number of high-profile real-estate deals have drawn international attention, including Anbang’s US$2 billion purchase of the iconic Waldorf Astoria hotel in New York in 2014.
If mainland insurance companies were to allocate 15 per cent of total assets under management to real estate, they would be investing up to US$240 billion, according to property consultant JLL.
“If they managed to spend all of their allocations in one year they would account for approximately 35 per cent of the global market,” said David Green-Morgan, global capital markets research director at international property consultant JLL. In 2015 the global direct market was US$705 billion, according to JLL
“This is unrealistic but Chinese insurance companies could be one of the most significant new sources of capital over the next decade,” said Green-Morgan.
“This is a long term game so there will inevitably be peaks and troughs in the level of activity,” he said.
Thomson Reuters data shows that insurers, led by Anbang and Ping An Insurance Group, spent US$12.2 billion in 2015 buying real estate, banks and other insurance company stakes at home and overseas, marking a record deal-making year.
In other notable deals since the easing of investment rules, China Life Insurance, the second largest mainland insurer, acquired 70 per cent ownership of a London office tower in Canary Wharf for US$939 million. Last year, it committed US$1 billion to US logistics real estate assets.
Sunshine Life meanwhile bought the Sheraton on the Park hotel in Sydney for US$353 million in 2014 and Baccarat Hotel in New York for US$230 million in 2015.
Chinese insurer gets go-ahead to buy landmark US Waldorf Astoria hotel
Anbang followed up on the Waldorf deal by taking a majority stake in South Korea’s Tongyang Life for US$1 billion and bought a series of office buildings in Toronto and Vancouver for about US$100 million each.
Led by chairman Wu Xiaohui, who is married to a granddaughter of former paramount leader Deng Xiaoping, Anbang’s global acquisitions in real estate and other sectors since 2014 have totalled at least US$11.5 billion.
Knight Frank’s head of research and consultancy for Greater China, David Ji, believes that insurance companies will continue to influence the global real estate in the next few years. More developers among the country’s top 20 have invested overseas last year – increasing from 10 to 14 – but there has been only a limited increase in the number of top 20 insurers investing abroad. Ji said it was four in 2014 and six so far last year.
“We will see more active involvement of the insurers in 2016,” said Ji.
Other analysts noted that Chinese insurers have a need to diversify.

“As their assets under management continues to grow, insurance companies are seeking out offshore real estate assets as a means to continue to diversify their investment portfolios. Regulators have also begun to increasingly recognise the importance of diversification to maintain the health of mainland insurers’ businesses,” said Frank Chen, head of research, CBRE Greater China.
The growing appetite and ambition from Chinese investors will continue to add to the level of activity in the market, and increase the level of competition for property assets in major markets and gateway cities around the world, he said.
The Chinese are coming: Insurers expected to pour US$73b into overseas properties
In particular, gateway cities and large metropolitan areas in the US, Europe, UK and Australia are likely to increasingly serve as a point of focus for Chinese investors, Chen said.
JLL said currently most of China’s insurance and pension funds’ investments are in domestic fixed income products.
However, considerable reform is taking place at home as pension funds grapple with the issues of rapidly ageing populations, low coverage rates of pension schemes, and a changing economic environment with increased urbanisation.
The asset allocation focus on low-yield fixed income assets presents potential difficulties in meeting future obligations for an ageing population.
As a result, insurers are keen to take advantage of real estate’s income-producing characteristics, its relatively low risk, and the benefits of a diversified portfolio.
JLL said as Chinese insurance companies become more active buyers of overseas real estate, their acquisition strategies have also evolved, from buying direct real estate to investing in funds and forming joint ventures.
Chinese insurers become key property investors
“Joint venture partnerships allow the companies to gain access to expertise and knowledge in local markets. For example [there is] Fosun Group’s partnership with UK’s Resolution Property to acquire real estate in Europe” said Alistair Meadows, head of international capital group, Asia Pacific at JLL.
“We are seeing a structural shift with Chinese insurance companies globalising their investment portfolios, including real estate. They are starting to follow their global peers in Europe and the US in terms of balancing their portfolios to have an appropriate allocation towards real estate,”said Meadows.


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Going Global

Chinese insurance groups seen as rising players in global real estate 

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Pedestrians walk past the W Hotel Hollywood in Hollywood, California, U.S., on Monday, March 21, 2016. Starwood Hotels & Resorts Worldwide Inc., owner of W brand hotels, accepted an improved takeover offer from Marriott International Inc. valued at $13.6 billion, proceeding with plans to form the world's largest hotel operator after investors led by China's Anbang Insurance Group Co. sought to thwart the deal. Photographer: Patrick T. Fallon/Bloomberg ORG XMIT: 615404541

Chinese insurer Anbang garnered world attention during its three-week battle to buy Starwood Hotels & Resorts, operator of the Sheraton and Westin hotels. Photo: Reuters

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