Gov't allows insurance companies to directly invest in property market

A branch of China Life in Nanjing, Jiangsu Province. Insurance companies are getting ready to invest directly in real estate. Photo: IC

By Zhao Qian

New regulations permitting insurance companies to directly invest in real estate took effect October 1, but analysts say they will not have a major impact on the industry.

The change is part of a set of new rules that the government initially revised in February to increase the number of investment opportunities for insurance companies.

Before the change, insurers could only buy property if they were going to occupy it themselves, or they could invest in real estate through subsidiary trust companies.

"Some major insurance companies like the People's Insurance Company of China, Ping An Insurance, and Taikang Life Insurance have been preparing to invest in real estate for several months," said Zhang Huaxue, assistant manager at the China Index Academy, a real estate research institute.

"A few of them have already hired people to research the market and are just waiting for further clarification of the rules to launch their investments," he added.

Real estate investment dovetails nicely with premiums as a revenue generator for insurance companies because they are both stable and long-term sources of income, Li Daxiao, director of Yingda Securities, told the Global Times.

Chinese mainland companies could potentially acquire real estate worth 236 billion yuan ($34 billion), according to a white paper from Jones Lang LaSalle, a financial and professional services company specializing in real estate.

But analysts said that amount will not have a large impact on the real estate market.

"Although over 200 billion yuan ($29.3 billion) seems to be a large sum, it will not greatly affect the industry because it is spread out over 120 companies, each of which will enter the market at different times," said Hao Yansu, a professor from the Central University of Finance and Economics.

Analysts also noted that the rules clarification, which has not yet been released, will likely be very strict.

The China Insurance Regulatory Commission will be supervising these investments very closely and will probably try to restrict the companies' actions, Hao said.

"Seven insurance companies in Japan went bankrupt during the Asian Financial Crisis of 1997 due to their investments in real estate," Hao pointed out. "so the Chinese government will be much more cautious this time around."

Hao said that a detailed clarification of the rules will not be released until the first half of next year.

Tuo Guozhu, a professor at the Capital University of Economics and Business, said that the amount of money each company is able to invest will depend on how well the real estate industry is doing.

"If the market is booming, the percentage that they can invest will be higher," Tuo remarked.

Insurance companies will only be allowed to invest about five percent of their capital in the real estate industry, CUFE's Hao predicted, far less than the 15 percent allowed in most other countries that restrict insurance companies' investments.

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