In­sur­ers fa­vor real es­tate as an in­vest­ment, es­pe­cially in US

Chi­nese off­shore com­mer­cial prop­erty in­vest­ment rises 25% year- on-year at the end of third quar­ter

China Daily (Hong Kong) - - BUSINESS DIGEST - By HU YUANYUAN

Real es­tate tops the type of non-tra­di­tional in­vest­ment fa­vored by Chi­nese in­sur­ers, a study by in­ter­na­tional ac­count­ing firm PwC showed on Wed­nes­day.

More than 81 per­cent of re­spon­dents chose real es­tate as their in­dus­try pref­er­ence, fol­lowed by fi­nance and insurance, trans­porta­tion and ware­hous­ing, and the pro­duc­tion and sup­ply of elec­tric­ity, gas and wa­ter.

And for over­seas in­vest­ments, 34.8 per­cent of re­spon­dents chose real es­tate as their top in­vest­ment cat­e­gory.

“A num­ber of in­sur­ers are seek­ing real es­tate projects over­seas, with the US be­ing their pri­mary choice, since it has a rel­a­tively high price-to-rent ra­tio,” said Zhou Xing, a part­ner at PwC China.

In July, China’s Ping An Insurance Group was re­ported to be buy­ing the Lloyd’s build­ing, a land­mark prop­erty in Lon­don, for $388 mil­lion.

“Ping An’s buildup of ac­tiv­ity will trans­late into sim­i­lar ac­tions in the insurance in­dus­try in 2014,” said Alis­tair Mead­ows, di­rec­tor of the in­ter­na­tional cap­i­tal group for Asia Pa­cific at Jones Lang LaSalle Inc, a global real es­tate ser­vices and in­vest­ment man­age­ment com­pany.

Chi­nese off­shore prop­erty in­vest­ment rose 25 per­cent year-on-year at the end of the third quar­ter, amid Chi­nese in­vestors’ grow­ing ap­petite for over­seas real es­tate deals, Jones Lang LaSalle said.

Chi­nese off­shore com­mer­cial real es­tate in­vest­ment vol­umes ex­ceeded $5 bil­lion in the first nine months of the year, best­ing the pre­vi­ous record of $4 bil­lion for the whole of last year.

Insurance com­pa­nies have been al­lowed to ac­cess non-tra­di­tional in­vest­ments since the sec­ond half of 2010.

In 2012, the reg­u­la­tor is­sued more than 10 rules in the non-tra­di­tional in­vest­ment sec­tor to ex­pand its scope and boost the yield of insurance cap­i­tal.

Tra­di­tional in­vest­ment fields in­clude bank de­posits, bonds, stocks and mu­tual funds, while non-tra­di­tional ar­eas in­clude real es­tate, in­fra­struc­ture and pri­vate eq­uity funds.

By the end of the third quar­ter, insurance funds’ in­vest­ment bal­ance to­taled 7.41 tril­lion yuan ($1.19 tril­lion), of which the pro­por­tion of non-tra­di­tional in­vest­ment in­creased to 15.15 per­cent, a steep rise com­pared with the 9 per­cent of 6.85 tril­lion yuan posted a year ago.

In the Pwc sur­vey, al­most half of the re­spon­dents said they planned to al­lo­cate 15 per­cent or more of as­sets to non-tra­di­tional in­vest­ment prod­ucts, but only about 18.75 per­cent were will­ing to put more than 20 per­cent in the sec­tor, sug­gest­ing that most insurance in­sti­tu­tional in­vestors are look­ing for growth while main­tain­ing an air of cau­tion.

Risk mon­i­tor­ing is an im­por­tant fac­tor that lim­its non-tra­di­tional in­vest­ment by in­vest­ment in­sti­tu­tions.

Mean­while, 75 per­cent of re­spon­dents said that risk mon­i­tor­ing is the big­gest dif­fi­culty as­so­ci­ated with non-tra­di­tional in­vest­ment.

“Insurance in­sti­tu­tional in­vestors are quite in­ter­ested in as­set-backed se­cu­ri­ties, in­di­cat­ing they are drawn to fi­nan­cial in­no­va­tion. They in­tend to try more types of in­vest­ments rather than be­ing lim­it­ing to a par­tic­u­lar sec­tor,” Zhou said.

In terms of over­seas in­vest­ments, the sur­vey showed that 75 per­cent of re­spon­dents pre­fer the US as an in­vest­ment mar­ket, 25 per­cent­age points higher than the sec­ond­most pop­u­lar mar­ket, Hong Kong (50 per­cent), fol­lowed by Europe (40.63 per­cent).

But the US, al­though the most fre­quently men­tioned tar­get mar­ket, also re­cently is­sued the For­eign Ac­count Tax Com­pli­ance Act, which, while de­signed to curb off­shore tax avoid­ance by its cit­i­zens, places higher com­pli­ance re­quire­ments on over­seas in­vestors.

“Those do­mes­tic insurance com­pa­nies deal­ing in over­seas in­vest­ments, par­tic­u­larly in the US, should pay de­tailed at­ten­tion to the act be­fore im­ple­men­ta­tion, in or­der to avoid pay­ing un­nec­es­sary tax,” said Zhou.

It was note­wor­thy that none of the re­spon­dents to the PwC sur­vey se­lected such emerg­ing mar­kets as In­dia, Rus­sia or other BRICS as his/her tar­get mar­ket for over­seas in­vest­ment.

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