Global property markets should be braced for approximately $75 billion of fresh capital from Asia’s insurance sector in just five years, global property services giant CBRE revealed in a study published today.
In its Liberalization and the Rise of Asian Insurance Investment in Real Estate report, CBRE predicted the combined effect of an increase in insurers’ asset sizes, increasing liberalization by the industry’s regulators, as well positive results produced by investments in real estate made by pensions and sovereign funds, would herald a new wave of equity into the sector from Asian insurers.
According to CBRE’s report, insurers in 10 Asian jurisdictions hold a combined $6.7 trillion assets, a higher value than the $5.8 trillion held by US insurers and the $3.3 trillion held by insurance companies in Europe. The Asian total is expected to grow further, particularly over the coming five years, CBRE said, as insurance is more widely needed and used. The firm said in China, one of four countries whose insurers make up about 90 percent of the region’s insurance assets, premiums have grown above 10 percent per year on average for the last five years. The other three countries are Japan, Korea and Taiwan.
CBRE said that, historically, regulation surrounding real estate investment by Asian insurers had been tight, limiting capital deployed. But several countries have started to allow overseas direct investments and/or higher allocations to the asset class. Indeed, real estate as a percentage of insurers’ assets has subsequently been low: China at around 1 percent, Japan at around 1.8 percent, 2.4 percent in South Korea and 4.8 percent in Taiwan. That compares to 6.7 percent in the US and 5.1 percent in the UK. Though Taiwan’s allotment has been higher, that capital has stayed within the country.
Marc Giuffrida, executive director in CBRE’s global capital markets team, added: “Asian insurance companies have seen the positive results pension plans and sovereign funds have achieved from increasing their exposure to global real estate. 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.”
With fewer institutional grade properties in Asia for insurers to acquire, increasing numbers are thus looking outside of the region for deals, a factor prevalent in sophisticated property markets like London and New York. CBRE said in 2013 alone, $2.4 billion of direct investment by Asian insurers outside of Asia occurred, much of the activity emanating from Chinese and Taiwanese insurers. CBRE predicted it would take time before Japanese insurers ventured overseas after previous international endeavours generally ended with poor results. Meanwhile, the firm predicted Korean insurers would favour indirect channels of investing in property.
Further, Giuffrida warned: “Given the low yield levels and the shortage of investable stock, particularly stabilized income producing assets in domestic markets, Asian insurance companies will have to explore opportunities in overseas markets. The lack of overseas real estate investment experience and the need for regulatory approvals is likely to mean activity will be limited initially to larger insurance companies with strong financial capability securing assets in major global cities, however as experience is built up we expect the tier two players to emerge in cross-border acquisitions and explore indirect strategies.”