Deregulation of Asian insurers driving investment: CBRE

Increasing liberalisation in the Asian insurance market is driving property investment, according to a new report from CBRE.

Historically, there have been strict regulations around insurance company investments in Asia, with limitations on real estate purchses. But CBRE's Liberalization and the Rise of Asian Insurance Investment in Real Estate report claims several Asian countries have begun to allow overseas direct investment with a greater threshold for real estate investment.

Total insurance assets in Asia outstripped the US and UK's insurance assets, according to insurance regulators in 10 Asia jurisdictions. Asia has US$6.7 trillion insurance assets, while the US has $5.8 trillion and the UK US$3 trillion. On the basis of total assets, Japan has the highest insurance market of anywhere in Asia, with US$3.3 trillion of assets. The majority region's other insurance assets are held by China, South Korea and Taiwan, with the four East Asian markets controlling around 90% of Asia's total insurance assets.

According to CBRE, Asian insurance companies generally operate under strict regulations controlling overseas real estate investment. The real estate company found that most of Asia's offshore insurance investments were in liquid assets including bonds, equities, cash and fixed income. It's estimated that only 2% of the continent's insurer's portfolios was made up of real estate at the end of 2013. CBRE claims that real estate generally makes up 4-6% of insurers' assets in "developed markets", with the US tying up 6.7% of their assets in real estate, and the UK 5.1%.

Of Asian countries, Taiwan has one of the highest proportions of real estate investment, with property the asset class making up 4.8% of their total insurance investments. The country only began allowing overseas investments for insurance companies in 2013.

CBRE expects the rapid growth of Asia's insurers and increasing deregulation will see US$75 billion entering the real estate market in between 2013 and 2018, with investment growing from US$130 billion to US$205 billion in five years. The apparent lack of appropriate investment opportunities in Asia and the ongoing liberalisation of Asia's insurance investment practices continues to result in increased offshore investment from Asia, according to CBRE.

The company reports that last year Asian insurers purchased about $2.4 billion in direct commercial real estate purchases outside the Asia Pacific region, with a strong preference for "trophy assets in gateway cities" such as London and New York. According to Ada Choi, senior director for CBRE research, the company expects the increase in real estate investment will be paralleled by total growth in the sector over 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," said Choi.

"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," she said.

In particular, low yields for local prime core assets have seen Chinese and Taiwanese insurers opt for overseas property investments, with a preference for full ownership. CBRE expects Japanese insurers to continue to primarily invest in their own domestic market, while South Korean insurance companies are expected to use more indirect channels to acquire offshore assets.