Insurers favor real estate as an investment

Chinese offshore commercial property investment rises 25% year-on-year at the end of third quarter

Real estate tops the type of non-traditional investment favored by Chinese insurers, a study by international accounting firm PwC showed on Wednesday.

More than 81 percent of respondents chose real estate as their industry preference, followed by finance and insurance, transportation and warehousing, and the production and supply of electricity, gas and water.

And for overseas investments, 34.8 percent of respondents chose real estate as their top investment category.

"A number of insurers are seeking real estate projects overseas, with the US being their primary choice, since it has a relatively high price-to-rent ratio," said Zhou Xing, a partner at PwC China.

In July, China's Ping An Insurance Group was reported to be buying the Lloyd's building, a landmark property in London, for $388 million.

"Ping An's buildup of activity will translate into similar actions in the insurance industry in 2014," said Alistair Meadows, director of the international capital group for Asia Pacific at Jones Lang LaSalle Inc, a global real estate services and investment management company.

Chinese offshore property investment rose 25 percent year-on-year at the end of the third quarter, amid Chinese investors' growing appetite for overseas real estate deals, Jones Lang LaSalle said.

Chinese offshore commercial real estate investment volumes exceeded $5 billion in the first nine months of the year, besting the previous record of $4 billion for the whole of last year.

Insurance companies have been allowed to access non-traditional investments since the second half of 2010.

In 2012, the regulator issued more than 10 rules in the non-traditional investment sector to expand its scope and boost the yield of insurance capital.

Traditional investment fields include bank deposits, bonds, stocks and mutual funds, while non-traditional areas include real estate, infrastructure and private equity funds.

By the end of the third quarter, insurance funds' investment balance totaled 7.41 trillion yuan ($1.19 trillion), of which the proportion of non-traditional investment increased to 15.15 percent, a steep rise compared with the 9 percent of 6.85 trillion yuan posted a year ago.

In the Pwc survey, almost half of the respondents said they planned to allocate 15 percent or more of assets to non-traditional investment products, but only about 18.75 percent were willing to put more than 20 percent in the sector, suggesting that most insurance institutional investors are looking for growth while maintaining an air of caution.

Risk monitoring is an important factor that limits non-traditional investment by investment institutions.

Meanwhile, 75 percent of respondents said that risk monitoring is the biggest difficulty associated with non-traditional investment.

"Insurance institutional investors are quite interested in asset-backed securities, indicating they are drawn to financial innovation. They intend to try more types of investments rather than being limiting to a particular sector," Zhou said.

In terms of overseas investments, the survey showed that 75 percent of respondents prefer the US as an investment market, 25 percentage points higher than the second-most popular market, Hong Kong (50 percent), followed by Europe (40.63 percent).

But the US, although the most frequently mentioned target market, also recently issued the Foreign Account Tax Compliance Act, which, while designed to curb offshore tax avoidance by its citizens, places higher compliance requirements on overseas investors.

"Those domestic insurance companies dealing in overseas investments, particularly in the US, should pay detailed attention to the act before implementation, in order to avoid paying unnecessary tax," said Zhou.

It was noteworthy that none of the respondents to the PwC survey selected such emerging markets as India, Russia or other BRICS as his/her target market for overseas investment.