Asian Insurers Target Global Real Estate as Regulatory Restrictions Ease, CBRE Group, Inc. Research Finds

The increasing liberalization of regulatory restrictions on Asian insurance funds could lead to an additional US$75 billion entering global real estate markets by 2018, with New York and London among the key targets, according to the latest research from CBRE.

Insurance companies in Asia are generally under-allocated to real estate because of stringent regulations, especially around overseas assets. Most of their overseas allocations are in liquid and transparent assets such as equities, cash, fixed income securities and government bonds. This situation is changing as several countries such as China, South Korea and Taiwan have started to allow overseas direct real estate investments, higher allocations to real estate and a simplified regulatory approval process.

The asset size of the Asia insurance sector is also growing fast, having increased 13% between 2008 and 2013. CBRE predicts that the combined effect of an increase in Asian insurers’ asset sizes and further liberalization will result in their investment assets growing from US$130 billion in 2013 to US$205 billion in 2018. This would translate into additional inflows of about US$75 billion into real estate - including direct and indirect real estate investment.

Chinese and Taiwanese insurance companies are likely to be more active in overseas real estate markets given limited opportunities and low yield levels for prime core assets in their domestic markets. Direct real estate investment will be their preferred channel given their preference for full ownership. South Korean insurance companies have invested overseas over the years and have accumulated experience in overseas real estate markets. CBRE therefore expects that South Korean insurers will use more indirect channels to expand their global portfolios.

Marc Giuffrida, Executive Director, CBRE Global Capital Markets, commented:

“Given the low yield levels and the shortage of investable stock, particularly stabilized income producing assets in domestic markets, Asian insurance companies will have to explore opportunities in overseas markets. The lack of overseas real estate investment experience and the need for regulatory approvals is likely to mean activity will be limited initially to larger insurance companies with strong financial capability to secure assets in major global cities; however as experience is built up, we expect the tier two players to emerge in cross-border acquisitions and indirect strategies.”

Ada Choi, Senior Director, CBRE Research, commented:

“CBRE expects the increase in capital deployment to real estate by Asian insurers will grow largely in tandem with the total asset size of the sector in the next five years. Looking ahead to the longer term, liberalization for insurance companies will speed up the pace of international real estate investments by Asian insurance companies. We expect that further relaxation on overseas real estate investment will take place as regulators gain more confidence about overseeing such investments and insurance firms become savvier about investing globally.”

According to the insurance regulators in 10 Asian jurisdictions, total insurance assets reached US$6.7 trillion in Asia at the end of 2013, higher than US$5.8 trillion in the US and US$3 trillion in the UK.

Industry statistics indicate that at the end of 2013, real estate made up on average just 2% of Asian insurers’ portfolios - US$130 billion, which includes direct and indirect real estate investments - and comprised 1.0% in China and 2.4% in South Korea. By comparison developed markets typically allocate 4-6% of their assets to real estate, and the figure stands at 6.7% for the US and 5.1% for the UK. For Asia, Taiwan stands out as the one market that has a relatively high real estate allocation of 4.8%; however, this capital has been trapped within Taiwan itself, with overseas investments only allowed since 2013.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.