Asian insurance companies set to invest in U.S. real estate

Publish Date: August 18, 2014

Finance

Regulatory restrictions on Asian insurance companies have been easing, allowing big insurers to invest in real estate outside their domestic markets. This huge source of capital will eventually flow to the United States, first to the major markets, probably through direct investments in high-rise office buildings before moving on to other geographic areas and property types.

Total Asian insurance assets reached $6.7 trillion at the end of 2013, which was bigger than the $5.8 trillion in the United States, reports CBRE in Beijing. Four countries — Japan, China, South Korea and Taiwan — control about 90 percent of the insurance assets in Asia.

Japan insurers have traditionally looked overseas, and now, due to the liberalization of insurance regulations, expect insurers from China, South Korea and Taiwan to do so as well. “This is mainly a policy-driven issue,” said Henry Chin, head of CBRE Research Asia-Pacific, in Hong Kong. “Asian countries have identified the need to catch up with international standards, increasing the flexibility and diversification of insurance fund investment portfolios.”

Part of the reason for the changes was the abysmal return profile of other asset classes after the global financial crisis, most notably the substantial decline in bond yields.

The Asian insurers have a long way to go to catch up to their Western brethren, however. Industry statistics indicate at the end of last year, real estate made up about 2 percent of Asian insurer portfolios, or about $130 billion. In China, that number was 1 percent, in Japan 1.8 percent and South Korea 2.4 percent, reports CBRE. By comparison, developed markets typically allocate 4.6 percent of their assets in real estate.

According to Chin:

• In China, the regulator’s approach has been to liberalize the overall capital markets rather than focus on insurance. It has only turned its attention to the insurance industry recently.
• In South Korea, the current approval process to invest overseas is lengthy, so regulators have started reviewing the process.
• In Taiwan, given the historically low yields in Taiwanese investments, the government has started evaluating out-bound opportunities.

The first focus of Asian insurers will be the domestic markets, where they are familiar, says Chin. Then they will move on to global gateway cities such as Sydney, Paris, London, Hong Kong, Frankfurt and in the United States, New York City, San Francisco and Los Angeles.

Chin believes the majority of the capital allocation from Asian insurers will continue to be in direct deals. However, some may look to indirect investments (i.e., through equity funds) when investing in assets outside the office space, such as shopping malls


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