Insurance industry to play greater role in China's real estate market, says Savills

KUALA LUMPUR: The insurance industry is poised to play a greater role in Beijing's increasingly domestic investor-dominated real estate market on the back of a huge scope for investment, said Savills Beijing deputy managing director Matthew Brailsford.

In Savills Research's 'Investment Quarterly 3Q2010', he said the insurance sector is able to invest 452 billion yuan (RM210.4 billion) in the property market, representing a tenth of their assets worth a collective 4.52 trillion yuan.

This amount is in line with the new laws introduced by the China Insurance Regulatory Commission (CIRC), which allows insurance companies to invest 10% of their total assets in real estate projects, as recorded at the end of the previous quarter.

"Insurance companies have been one of the most active players in the en-bloc investment market over the last few years acquiring many projects primarily for end-use," said Brailsford.

The new regulations are also expected to bring investments worth 475 billion yuan into Shanghai's commercial property market, which is a significant jump from the 15.8 billion yuan investment in August, said Savills Shanghai managing director Albert Lau.

"Considering insurers represent a comparatively greater share of institutional real estate investment in more mature markets around the world, it is prudent to assume that much of this capital will be invested in real estate as the market matures," said Lau.

Meanwhile, Hong Kong Savills deputy managing director Peter Yuen said retailers' huge interest in prime locations is causing a major pricing gulf between primary and secondary areas.

"We note that tourists are moving beyond traditionally popular malls, to target first-tier centres, which have not traditionally appealed and this is requiring some adjustment in trade and tenant mix," he said.

He noted that a combination of large tourist arrivals and a quiet local market has caused international retailers to train their sights on Hong Kong and China "as never before", with competition for prime locations especially among upscale fashion labels and jewelers growing with rents of HK$1,000 psf (RM401) becoming more common.

In Singapore, more transactions, especially in the office market, are expected on the back of the city state's Ministry of Trade and Industry's upgraded full economic forecast for 2010 to between 13% and 15% despite implications from the US and Europe's economic uncertainties, said Savills South East Asia chief executive officer Christopher J Marriott.

Meanwhile, in Japan, real estate activity is expected to remain strong over the coming months, especially for its real estate investment trusts (J-REITs) with strong sponsorship relations due to an improving funding environment and ongoing consolidations, said Savills Japan chief executive officer Christian Mancini.

"Historically low pricing and the availability of cheap debt is also anticipated to attract heightened overseas investment, particularly from Asia going forward," said Mancini.

In South Korea, prices of real estate have been steady in the previous quarter due to lack of supply and current leasing market conditions, while capitalisation rates stayed around 5% to 6%.

"Investors are broadly conscientious of the increase in supply in 2011 (with six office buildings coming on stream) and some appear to be waiting to see if this presents an opportunity," he said.

In Australia, Savill Australia's chief executive officer Paul McLean said vacancy will now be determined by lower tenant demand as opposed to new spaces due to a lack of construction.

"Once tenant demand recovers (in the medium term) we may be faced with a lack of supply similar to the situation faced in late 2007," he said.

He also notes that interest costs have dropped significantly while yields have grown to the benefit of buyers, allowing them to purchase quality property with a positive spread to debt costs for the first time in ten years.

"For vendors, the global credit crisis is now a reality accepted by all. Those finding it necessary to sell in order to meet capital requirements or debt obligation are more accepting of prevailing market rates," he said.

Savill's investment quarterly covers Australia; Beijing, Hong Kong and Shanghai in China; Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand and Vietnam.