Asian markets with similar cultural backgrounds such as Thailand, Hong Kong, Singapore and Malaysia are among countries being targeted by Chinese insurance funds that have more than US$14 billion available for overseas real estate investment, according to the latest research report from global property adviser CBRE.
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The prime targets are high transparency markets including Singapore, the UK, US, Canada and Australia., according to CBRE.
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.
Chinese institutional investors are still relative newcomers to cross-border real estate investment strategies, compared to pension funds, insurance funds and sovereign wealth funds from other regions, the report said.
However, in recent years Chinese institutional investors have started to increase their investment in overseas real estate markets. The trend has been driven by several factors, including 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.
In 2012, the total assets of China’s national insurance institutions stood at US$1.2 trillion. New regulations permit these institutions to invest up to 15% of their assets in “non-self-use” real estate. By this measure, there is in excess of $180 billion currently available for real estate investment, according to CBRE.
Based on patterns of insurance fund allocations witnessed in developed countries in recent years (with most insurance funds typically allocating up to 6% of their assets to direct property investment) and assuming an 80:20 split between domestic and overseas market, it is estimated that Chinese insurers could invest up to US$14.4 billion in overseas real estate.
Although the number of investable properties in developing regions has increased sharply in recent years, those of high enough quality are still limited in Asia Pacific when compared with North America and Europe. For this reason, Chinese institutional investors are expected to focus on premier office investment opportunities in gateway cities, which are capable of generating stable Return on Investment (ROI) in the short term, such as the premier offices in international gateway cities.
Markets marked by high transparency, including the UK, US, Canada, and Australia, as well as Asian markets that are adjacent to the Chinese mainland with similar cultural backgrounds, such as Thailand, Hong Kong, Singapore and Malaysia, will likely be the major destinations for Chinese real estate investors in the future.
Marc Giuffrida, executive director of CBRE’s Global Capital Markets, said “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.
He said when compared with developed countries, the allocation by Chinese insurance companies to overseas real estate investment is still relatively low.
“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 to follow,” Mr Giuffrida said.
David Simister, chairman of CBRE Thailand Cambodia, who also covers Laos and Myanmar, said 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. Chinese direct property investment in Thailand has been through joint ventures with Thai partners due to the restrictions on foreign ownership.
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