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Thailand Property Investment – Chinese Insurers Set to Invest More in Realty

By on Sep 03, 2013 in Property News

Chinese insurance funds have more than US$14 billion (Bt449 billion) available for overseas real-estate investment, according to CBRE.

High-transparency markets, including Britain, the United States, Canada and Australia, as well as Asian markets with similar cultural backgrounds such as Thailand, Hong Kong, Singapore and Malaysia, are expected to be among the key targets, the global real-estate services firm said.

With the scarcity of investable prime properties in first-tier Chinese cities and the short-term risk from the oversupply in second- and third-tier Chinese cities, prime high-end office properties in core international cities are expected to be highly sought after, especially considering the attractive yields they can produce in today’s low-interest-rate environment.

Chinese institutional investors are still newcomers to cross-border real estate investment strategies, compared with pension funds, insurance funds and sovereign wealth funds from other regions. However, in recent years Chinese institutional investors have started to increase their investment in overseas property markets.

The trend has been driven by several factors, including limited investment channels in China, abundant liquidity, yuan appreciation and the relatively lower valuation of overseas assets in the years following the 2008 financial crisis.

Last year, the total assets of China’s national insurance institutions stood at $1.2 trillion. New regulations permit these institutions to invest up to 15 per cent of their assets in “non-self-use” property. By this measure, there is in excess of $180 billion available for real-estate investment.

Based on patterns of insurance fund allocations witnessed in developed countries in recent years, with most funds typically allocating up to 6 per cent of their assets to direct property investment, and assuming an 80:20 split between domestic and overseas markets, it is estimated that Chinese insurers could invest up to $14.4 billion in overseas property.

Although the number of investable properties in developing regions has increased sharply in recent years, those of high enough quality are still limited in the Asia-Pacific region compared with North America and Europe.

Gateway cities Chinese institutional investors are expected to focus on premier office investment opportunities in gateway cities, which are capable of generating stable return on investment in the short term, such as the premier offices in international gateway cities.

Markets marked by high transparency and those adjacent to the Chinese mainland will likely be the major destinations for Chinese real-estate investors in the future.

Marc Giuffrida, executive director of CBRE’s global capital markets group, said yesterday that Chinese insurance institutions were already well established in domestic markets, but after a series of government policy changes, they will look to target overseas commercial-property markets.

The insurance industry, in particular, is thriving. Buoyed by ever-increasing funds, they will target gateway cities around the world such as London, New York, Toronto, Singapore and Sydney in increasingly large amounts. The low-liquidity, value-added potential and stable cash flow of prime office and retail assets offer a perfect match for these investors.

“Compared with developed countries, the allocation by Chinese insurance companies to overseas real-estate investment is still relatively low,” Giuffrida said. “Even with a modest increase in allocations given the capital base, the flows could be quite substantial. Using the Malaysian and Korean outbound-investing experience as a guide, big industry leaders will lead the way, but once they demonstrate success, the rest of the industry will follow.”

Real estate is new for these investors, with Chinese insurance funds only permitted to invest in property in 2009 when changes to government policy were made. Further regulation changes now permit insurers to invest a maximum of 15 per cent of their total assets as of the end of the last quarter in “non-self-use” property.

The new regulations are well measured to encourage sustainable investing through the cycle. For example, investing is limited to “mature retail and office properties with stable income, located at the central areas of the major cities in 25 developed markets” including the US, Britain, Hong Kong and Australia. This also includes listed real estate investment trusts (REITs) in these 25 countries or regions.

“There has been significant Chinese private and corporate investment in development sites in both Cambodia and Laos, but to date only limited investment in Thailand,” said David Simister, chairman of CBRE Thailand Cambodia, who also covers Laos and Myanmar. “Chinese direct property investment in Thailand has been through joint ventures with Thai partners due to the restrictions on foreign ownership.”

Source : The Nation 3 September 2013

 

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