Plan To Lift Curbs On Insurers Could Boost Property Deals

Source : The Business Times, April 25, 2008

Regulator looking at allowing insurers to invest in property, infrastructure

(HONG KONG) Chinese moves to allow insurance firms to invest in property could unleash billions of dollars in deals for commercial buildings and embolden developers and foreign investors who hanker for a more active market.

Property investment typically gives insurers the steady income they need to balance long-term liabilities. But because Beijing wants to cool property prices, particularly in a housing sector fuelled by an influx of 8 million people into cities each year, it has been wary about giving the green light to the prospective new players.

However, a slump of over 40 per cent by the Shanghai stock market since an October peak has instilled a sense of urgency, with regulators realising insurance firms, flush with US$300 billion for investment, need to diversify risk beyond stocks, bonds and deposits.

Yuan Li, a top executive at the China Insurance Regulatory Commission, told a news briefing on Wednesday the authority was studying the possibility of allowing insurers to expand investment in infrastructure and property but gave no time frame.

Such a move could release as much as US$30 billion to US$40 billion in investment in Chinese commercial property, said Stuart Leckie, an actuary and Chinese pensions expert who heads advisory firm Stirling Financial.

'It's not going to happen this week or this month, but maybe over the next five years,' Mr Leckie said, adding his estimate was based on global industry norms of 10 to 15 per cent portfolio allocations to property.

Chinese insurers have long been property investors on the sly - taking advantage of being allowed to own their own headquarters and branch offices, but leasing out a lot of space.

Top-notch offices in Shanghai and Beijing give an annual rental yield of about 8 per cent, compared to 3 per cent in Tokyo and 4 per cent in Hong Kong.

Some insurers, though still technically barred from investing in property, are already getting a nod for specific projects.

Industry leader China Life Insurance owns 20 per cent of Beijing's Oriental Plaza shopping, office and apartment complex.

Big investment by insurers would benefit developers of commercial properties such as Guangzhou R&F Properties and Hong Kong's Cheung Kong (Holdings) and Sun Hung Kai Properties .

It would also encourage foreign investors, who are lured by China's fast economic growth but need to know that domestic funds can buy their buildings when it's time to exit and take profits.

'It's certainly going to create more liquidity, but it also creates more competition for foreign players,' said David Dudley, regional capital markets director for Jones Lang LaSalle in Hong Kong. - Reuters