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Domestic insurers and developers bolster China RE exposure

Local insurers and developers’ share of transaction volume has risen from around 17% between 2008-2010 to 35% in 2016 due to limited investment alternatives and slower economic growth, according to data from CBRE.

Property investment transaction volume in China surged 100 percent year-on-year to 180 billion yuan ($22.6 billion; €23 billion) in 2016. Of this, Chinese insurers and property developers share of transaction volume rose from around 17 percent between 2008-2010 to 35 percent in 2016, according to data from global property consultancy CBRE.

The growth in domestic real estate appetite from insurers and developers is due to limited investment alternatives elsewhere in the global markets, slower economic growth globally, historically low interest rates and favorable domestic policy environment.

For instance, continuing regulatory curbs on capital outflows have also dissuaded Chinese investors from undertaking any cross-border trade requiring conversion of yuan into foreign currencies. Chinese insurers, which in recent years had been making headlines for rapid global real estate investment, accounted for 18 percent of China’s 2016 real estate investment.

“During the global financial crisis, Asian capital was very well positioned to go abroad. But in the past 18 months, it has not been easy to take capital out of China. That is also maybe why domestic capital is deploying more money for real estate onshore as they build up their real estate portfolio,” Christina Gaw, managing principal and head of capital markets for Hong Kong-based real estate investment firm Gaw Capital Partners, told PERE at a recent roundtable.

Also, another faster growing part of the local managers’ pool are real estate developers looking to carve out independent fund management businesses. China Vanke’s V Capital, established in 2015, is one recent entrant, as is Country Garden Asset Management. Chinese developers accounted for under a quarter (23 percent) of the total investment in Chinese property in 2016, the CBRE data said.

The developer-turned-manager trend is not brand new to China, but as Terence Tang managing director for capital markets and investment services in Asia for Colliers, pointed out, developers launched fund management platforms eight to nine years ago – but this time around the intentions are different.

“Earlier it was being done to raise capital to supplement the developers’ own balance sheet capital in land acquisitions because it was hard to get equity capital,” said Tang.

At the same time, the Chinese commercial real estate market has begun to shift from a primary market dominated by investment for development to a secondary market characterised by investment in income producing assets.

“Now, [developers] are looking at it as a new business line to expand their business scope and to have a constant revenue stream through fee income,” Tang added.