Chinese insurers become key property investors
Since being freed to buy commercial real estate in 2009, the industry giants have become key market players, and their role is set to grow
The mainland's real estate market turned a new page in 2009 when the government allowed insurers to invest in immovable property. In the three years since they have become increasingly active in the market.
As authorities continue to ease regulations, the potential for asset-rich insurers to spur the market could be immense, and they may take market share from foreign real estate funds.
From October 1, 2009, subject to certain qualification requirements, insurance companies were free to invest up to 10 per cent of their rolling quarterly assets in commercial property. Last year the ceiling was raised to 15 per cent, and since domestic insurers held total assets of 7.36 trillion yuan (HK$9.27 billion), more than 1.1 trillion yuan was available for property investment.
Long-term investments providing stable income that conforms with the requirements of regulators and customers are preferred, which is why traditional investment choices - such as bank deposits and bonds - are popular among insurers.
Investors turn to alternative investments, such as real estate, for risk diversification and higher returns, and the complexity of valuing real estate investments means they have to be cautious in planning, evaluating, and analysing their portfolios. However, the potential returns could well compensate for the extra effort.
Currently, domestic insurers are allowed to acquire only commercial property. Nevertheless, with its long duration, stable rental income, and comparatively lower risk, this is seen to be a legitimate choice.
