MIPIM Asia: Chinese insurance giant reveals RE return requirement

Ping An told delegates at the MIPIM Asia 2013 conference that it was seeking assets that could generate a higher return than onshore bonds.

Ping An, one of China’s largest insurance companies, is seeking to invest in real estate assets overseas that can deliver stronger returns than can be achieved from domestic bonds, according to one of its senior executives.

Hing Yin Lee, senior executive director of Ping An Trust, part of the insurance giant responsible for making real estate investments, told delegates at the MIPIM Asia 2013 conference in Hong Kong this week how Chinese insurers are combing international real estate markets for deals.

However, he said Ping An has set a benchmark of beating returns offered by onshore bond yields for its international real estate outlays. Typically Chinese bonds have delivered an average of 4 percent – although last quarter Ping An invested in bonds producing a return of 4.8 percent.

Lee added that Chinese insurers regarded domestic bonds as essentially risk-free making it harder for them to get comfortable with investments in overseas jurisdictions unless they generated significantly higher returns.
“That’s really the constraint for offshore real estate: we have to beat that yield, outperform the onshore bonds,” Lee said.

That is part of the reason insurers and other institutions in China are maintaining such a cautious approach to investing, delegates heard.

However, while many Chinese institutions understand they require greater education when it comes to real estate investing, some are anticipating making outlays beyond the relative safe confines of Tier I cities in an effort to find value, KPMG partner Allison Simpson said on one of the conference’s panels. “Many are asking, ‘Where can we go for value [investments] where the competition is not so great?’” Simpson said.

Nonetheless investors like Ping An are looking for immediate income, Lee continued. Ping An’s first direct overseas real estate investment, the purchase of the Lloyd’s of London building reflected a net initial yield of 6.1 percent at closing.

Chinese institutions also are expecting to build up real estate teams, according to Jingming Xiao, the general manager of the private equity and real estate investment department of Chinese insurer New China Insurance.
“We are doing market studies and research now,” Xiao further explained. “In foreign real estate, we want to do joint ventures, and cooperate with professional investors. If we can rely on good overseas partners, that will work well for us.”

Collin Lau, founder of fund manager Bei Capital and former head of China Investment Corporation’s (CIC) real estate investments, added that while many Chinese institutions have high real estate allocations, they remain preoccupied with how to execute that strategy and, as such, it would take time for their capital to filter through into the world’s real estate markets: “They’re still playing catch-up,” he said.