As Taiwan insurance groups start expanding their real estate portfolio into continental Europe, following successes in the UK market, up to US$10 billion could be allocated to offshore property investment globally in their next investment phase (3-5 years) as regulations continue to ease, according to JLL.
According to JLL’s Alistair Meadows, Head of International Capital Group in Asia Pacific, this investment momentum generated by Taiwanese insurance groups in 2014-2015 is likely to continue into 2016 due to potential relaxation of the real estate investment policy by the Taiwanese regulator.
The Financial Supervisory Commission’s Insurance Bureau is reviewing restrictions that put a cap on real estate investment opportunities. In November 2012, the FSC announced that Taiwanese insurance companies were allowed to invest up to 10 percent of their net worth in real estate investment outside of the island. Plans are underway reportedly to lift that cap to 30 percent.
“After initially investing in London we are now seeing a clear trend of Taiwanese insurance companies diversifying their core office investments into European gateway cities,” explains Matthew Richards, Head of JLL’s International Capital Group, EMEA. “This follows a similar pattern by other Asian investors for example Korean investors moving from UK into France & Germany.”
Taiwanese investors have deployed a total of US$1.2 billion in the European market in 2014 that uplifted capital flows, followed by a further US$1.8 billion in 2015.
Most recently, following an active year in London, Fubon Life announced that it has purchased ‘The Ellipse’ in Brussels from AG Real Estate for c.US$225 million marking their first transaction in Continental Europe.
Fubon acquired its first UK office investment, 1 Carter Lane for $218 million, in 2014. The same year Cathay Life announced its first offshore acquisition buying the Woolgate Exchange Building in London for $516 million.
The island’s third largest insurer, Shin Kong Life, made its debut in London acquiring 40 Gracechurch Street in the City for $205 million in December 2015.
This volume of investment now makes Taiwan the fourth-largest source of Asian capital into Europe.
“Faced with a relatively small domestic commercial real estate market and prime office yields of sub 3 percent, Taiwanese insurers are not only likely to further increase their investment into London but become increasingly active in Europe,” says Eric Pang, Head of JLL’s UK-China Business Group in London.
Taiwanese investors are constrained from investing into U.S. real estate due to regulatory restrictions which do not allow financial holding companies to buy property for investment but only for self-use purposes.
Taiwanese life insurance companies are part of the larger parent financial holding companies with stakes in banks, brokerage houses, among others. Unlike Chinese insurance companies, which have been buying up real estate in cities like New York, Taiwanese insurance companies are at a relative disadvantage when investing in the U.S.
Taiwan has more than 40 insurance companies with assets under management of US$580 billion and cash totalling about NT$4 trillion (US$122.7 billion).
“Current regulations do not allow insurance groups to leverage their investments or enter into joint ventures – there is also a relatively lengthy regulatory approval process,” says Meadows.
“Despite these challenges, Taiwan’s conservatively inclined insurance groups have demonstrated a high level of reliability on deal execution.”
‘The search for yield and the benefit of risk diversification will continue to prompt Taiwanese insurers to seek real estate investment overseas.”
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