Insurers in Asia are set to pour more than $75 billion into the real-estate sector over the next five years as regulatory restrictions are lifted and increasing numbers of countries streamline approval processes and allow direct investments, a recent report states.
In its Liberalization and the rise of Asian Insurance Investment in Real Estate report, international real estate firm CBRE says that while Asia is the biggest insurance market overall, insurers throughout the continent were ‘under-allocated’ in real estate, with only around two per cent of their portfolios devoted to property against 6.7 per cent for the United States and 5.1 per cent for the United Kingdom.
These figures are changing as a number of countries in the region ease regulatory burdens and restrictions.
In China, for example, the latest revision to guidelines earlier this year by the China Insurance Regulatory Commission means insurers are now allowed to invest up to 30 per cent of their portfolios into real estate, up from 15 per cent as recently as 2012.
Meanwhile, Taiwan started allowing insurers to invest abroad last year, while the past two years have seen both these countries along with South Korea loosen maximum real estate allocations and streamline regulatory procedures associated with investing in property abroad.
Furthermore, CBRE says momentum will also be added as other large international investors such as sovereign wealth funds demonstrate increasingly higher returns from moving deeper into property.
“Asian insurance companies have seen the positive results pension plans and sovereign funds have achieved from increasing their exposure to global real estate,” CBRE Global Capital Markets executive director Marc Giuffrida said. “Importantly there is now evidence and precedence in place which both regulators and investment committees can point to, which may relieve concerns around the risk/return trade-offs.”
Asia’s combined total insurance assets totalled $US7.7 trillion at the end of 2013, according to data from regulators in 10 Asian jurisdictions, ahead of the $US5.8 trillion in the United States and $US3 trillion in England.
CBRE is but one entity bullish about the sector.
According to a survey it conducted in May, New York based alternative assets research firm Preqin reckons the number of insurance companies with Asia-Pacific assets grew by 26 per cent in the 12 months to April and that the region was the number one preferred geographical destination worldwide for real-estate investment.
Furthermore, CBRE says Asian insurance companies will not only grow in their home region but will increasingly seek out cross-border transactions as the aforementioned loosening of assets frees them up to do so – although a lack of overseas experience means this activity will be limited to larger firms and concentrated toward ‘trophy assets’ in gateway cities such as London and New York.
On a country by country basis (main countries only), according to CBRE:
- A lack of domestic opportunity and low yields for prime core assets will see insurance companies in China and Taiwan seek more investment overseas, with direct sales and full ownership being the preferred channel
- Hurt by previous overseas adventures, Japanese firms will stick mainly to domestic markets.
- Having a decent amount of overseas experience, firms in South Korea will push further into indirect investments.