Insurance Funds Making Inroads into Chinese Real Estate

Date:2011-10-25     Source:litingtinglitingting  Text Size:

 October 24, Since being cleared to invest in real estate last September, Chinese insurers have been moving their funds into a range of property projects from commercial developments to retirement homes, and are even helping the government bankroll its social housing program.

In September 2010, the China Insurance Regulatory Commission (CIRC) issued new rules allowing insurance companies to make financial investments of up to 10% of their total assets ending the prior quarter in property and property-related projects.

That translates into some RMB 500 billion based on the combined assets of RMB 5 trillion of Chinese insurance firms as of the end of 2010, according to data from the CIRC.

Of the RMB 5 trillion, around RMB 985 billion was newly added in 2010, 10% of which likely found its way into the largest property deals in China that year, real estate services provider Jones Lang LaSalle (JLL) said in its latest research report on China's property investments.

Testing the Water

"But this is clearly just an assumption as we haven't seen any such massive investments," the JLL report said.

"No insurers actually made ambitious moves [during the past year],” a person from a large local insurer told the 21st Century Business Herald.

Analysts said insurers would still focus on testing the water in the next 1-2 years, making some tentative investments rather than jumping in with both feet.

So far insurers including Ping An Insurance (Group) Co. of China Ltd. (601318.SH 02318.HK), China Life Insurance Co. Ltd. (601628.SH) and Taikang Life Insurance Co. Ltd. have all built their own property investment management platform.

Insurers often have to deal with challenges from building a property talent pool to run their property investment management team to selecting the appropriate investment opportunities, according to JLL. “It may take 1 more year before they [insurers] are ready to launch forays into the real estate sector,” the report noted.

Retirement Homes

One particular field of interest for insurers is retirement homes, which is closely related to their core businesses of medical and healthcare insurance services.

“An aging Chinese population will create plentiful opportunities for retirement homes, and we have a chance of capitalizing on this blue-sea market,” an executive from another Chinese insurance company said.

Taikang Life is one of the earliest insurers to have captured such opportunities. The company gained approval from the CIRC in November 2009 to trial a retirement community project, the first of its kind among Chinese insurers.

The company bought a tract of land with an area of 2,000 mu in Changping district of Beijing following the CIRC’s nod, and the first Taikang Retirement Community is expected to be completed sometime between 2013 and 2014.

“We plan to invest RMB 4 billion in this community and in the next 4 years, we hope to operate a modern retirement community in Beijing with inclusive services such as healthcare, medical treatment and leisure services,” Taikang Life president Chen Dongsheng told the 21st Century Business Herald.

Union Life Insurance Co. Ltd. also plans to develop a RMB 15 billion healthcare community for old-age people on an 800-mu plot in Wuhan, the construction of which will start by the end of this year, company president Dai Hao said in March.

Union Life obtained the land plot without too much difficulty thanks to its good relationship with the Wuhan Municipal Government, but most other insurers, no matter how determined to enter the sector, face problems in buying land, according to a senior industry insider.

The current statutory retirement age in China is 60 for male employees, 50 for ordinary female workers and 55 for female officers. But in practice, many employees of state-owned enterprises are allowed to retire in their late 40s or 50s to make openings for new graduates and others.

Chinese citizens aged 60 and above will account for more than 16% of the country’s total population of more than 1.3 billion by 2030 and 30% in the following 2 decades, according to the United Nations.

The Chinese government is also encouraging older citizens to mortgage or rent their homes to raise money for their retirements. The system is similar to the home equity conversion mortgage in the U.S., a type of mortgage in which a lender makes payments to home owners, allowing elderly citizens to convert the equity they have in their homes into cash.

Several Chinese residential property developers are also keen to enter the retirement home market. China Vanke Co. Ltd. (000002.SZ), the nation’s largest listed developer, announced its plan to move into the sector last December with a 12,000-square meter project in Fangshan district of Beijing scheduled to be launched by 2012.

Social Housing

China’s goal of rolling out 36 million government-subsidized houses, or social housing units, is being hampered by cash shortages, opening the window for insurance funds to take part in what the government has announced is an important program.

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