China Insurers Have $14 Billion to Spend on Property

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Chinese insurance funds are sitting on a treasure chest of $14.4 billion to spend on international real estate, CBRE estimates.

"High transparency markets" such as the U.K., United States, Canada, Singapore, Hong Kong and Australia are expected to be among the key targets, according to the consultancy.

"Given the present 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," CBRE reports.

China institutional investors are still "relative newcomers" to international property deals, CBRE notes. But the institutional investors have been increasing overseas investments in recent years, driven by "limited investment channels in China, abundant liquidity, local currency (RMB) appreciation, and the relatively lower valuation of overseas assets in the years following the 2008 financial crisis."

CBRE's calculations focus on a change in regulations which allows institutions to invest up to 15 percent of their assets in "non-self-use" real estate. In 2012, the total assets of insurers stood at $1.2 trillion, leaving $180 billion available for real estate investment, by CBRE's calculations. Based on historical investment patterns and an 80:20 split between domestic and international investments, CBRE landed on the $14.4 billion figure.

"Chinese insurance institutions are already well established in domestic markets, but following a series of government policy changes, they will look to target overseas commercial real estate markets," Marc Giuffrida, CBRE's executive director of global capital markets, said in the report. "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, Hong Kong and Sydney in increasingly large amounts."

The allocation of Chinese insurance companies to international property is low, "even with a modest increase in allocations given the capital base the flows could be quite substantial," Mr. Giuffrida said.

Chinese insurance companies were not permitted to invest in real estate until 2009, CBRE notes.