September 24,2009

200 Billion Yuan Insurers' Fund Eyes Real Estate Investment

By CSC staff, Shanghai

A new Insurance Law is slated to come into effect on October 1, and related regulations on real estate and unlisted equity investment by insurance funds will also be introduced, maybe in October. Since last February, the newly revised Insurance Law allows insurance funds to invest in real estate for the first time. Prior to that, insurance funds could enter the real estate only under the name of "using for themselves."


Ping An Trust, a subsidiary of Ping An Insurance Group of China, a Hong Kong-listed holding company involved in insurance and finance, has signed a framework agreement on co-investment strategy with Greentown Group, promising to invest 15 billion yuan of trust funds in three years in real estate projects developed by Greentown. On August 6th, Ping An Trust signed a trust strategic framework agreement with Gemdale Group, involving investment up to billions of yuan.


As of the end of June, the asset balance of insurance companies nationwide totaled 3.4 trillion yuan. Based on an international standard that 5-10% of an insurance firm's assets can be used in real estate, at least 170 billion yuan may now be used for real estate investment, with a maximum of 200-300 billion yuan.


Insurance funds look to play a large role in the real estate market. Insurance funds favor safety first and revenue second. Only well-run commercial properties with stable cash flow are likely to attract insurance funds, not residential properties. It is rumored that big orders by insurance funds for commercial properties will emerge in the next few months.

Current investment returns on commercial property average about 5-8%, lower than that of stocks and funds, but higher than that of bonds and bank deposits, and so attractive for insurance funds seeking long-term stable returns.


The price of high-quality commercial property may well rise due to seller's increasing expectations for turnover with the involvement of insurance funds. The impact is unlikely to extend beyond the commercial property market.



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