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CBRE's Liberalisation and the Rise of Asian Insurance Investment in Real Estate Report, has discovered that the liberalisation of regulatory restrictions on Asian insurance companies investing in real estate is accelerating.
This in turn is helping to drive an increase in real estate investments, upgrading their property investments to US$75 billion by 2018.
The report discovered that historically tight regulations around insurance company investment in Asia have limited the capital deployed into real estate assets.
This situation is now changing after several countries in Asia have started to allow overseas direct investments, higher allocation to real estate and a simplified approval process.
According to the insurance regulators in 10 Asian jurisdictions, total insurance assets reached the level of US$6.7 trillion in Asia at the end of 2013, higher than US$5.8 trillion in US and US$3 trillion in the UK.
Japan is the largest insurance market by assets, controlling US$3.3 trillion of assets while the rest is largely held by insurers in China, South Korea and Taiwan.
These four countries collectively control about 90 per cent of the insurance assets in Asia.
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 and government bonds.
CBRE’s Global Capital Markets team Executive Director Marc Giuffrida said there was now evidence and precedence in place that both regulators and investment committees could point to which could relieve concerns about the risk and return tradeoffs.
Asian insurers are also growing rapidly due to a low penetration relative to the west, combined with fast economic growth.
Insurance premiums in China alone have grown above 10 per cent per year on average for the past five years.
The asset size of the Asia insurance sector is also growing fast, having increased 13 per cent between 2008 and 2013.
According to CBRE, these insurers have a strong preference for trophy assets in gateway cities, particularly when they make their first overseas investments.
The top cross-border destinations are London and New York, though it varies by country where its insurers are looking to invest.
“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,” Mr Giuffrida said.
“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 securing assets in major global cities, however as experience is built up we expect the tier two players to emerge in cross-border acquisitions and explore indirect strategies."“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,” said Senior Director for CBRE Research Ada Choi.