Here’s Why China Life Insurance Company Ltd. (ADR) Investing Over $1 Billion In US Warehouses
China’s largest insurance company is investing over $1 billion in US warehouses; CBN investigates why
China Life Insurance Company Ltd. (ADR) (NYSE:LFC) is investing upwards of $1 billion in the US warehouses making, taking its international real-estate acquisition to a record level as reported by Wall Street Journal (WSJ). The largest life insurer in China is forecasted to take almost 30% stakes in the warehouse operations belonging to the Global Logistic Properties Ltd. which is partly owned by Singapore’s sovereign wealth fund.
The largest life underwriter in China posted a plunge of 73% to 2.5 billion Yuan ($0.39 billion) in its third quarter fiscal year 2015 (3QFY2015) report. However, the company’s net profit in the year to date (YTD) period rose 23% to 33.8 billion Yuan ($5.32 billion). The struggling results from the latest quarter of China Life Insurance point towards the need to diversify its investment portfolio considering the huge size of its customer base. The company needs to find a secure base for its investments that could give protected returns and the US real estate is one such market.
This move from China Life Insurance comes in a series of cross-border real-estate acquisitions by market leaders in China’s Insurance space as they look to hedge their risks against the uncertainty in the Chinese economy. The Chinese insurers are also trying to break away from the weak tradition of only allocating 1% of their capitals towards real estate compared to their US counterparts who invest 5-15% in the same category. A week ago, China's Ping An Insurance Group Company created a $600 million fund in collaboration with the US property fund Blumberg Investment Partners with the aim to further invest in real-estate across the US. Ping An is the largest Insurer in China in terms of premiums and has two offices in London since July 2013 as reported by WSJ.
China Life Insurance also purchased a 70% stake in London’s 10 Upper Bank Street which holds upwards of a million square feet of office space near the Canary Wharf. WSJ reports that In April 2015, the company collaborated with Ping An and took a 33% stake each in a $500 million development project in Boston in association with Tishmen Speyer Properties.
Property Brokerage House JLL’s head of Capital Group of China, Darren Xia reckons that looking at the inclination of Chinese insurance companies towards the US real estate market, there is a huge potential of hefty future inflows. Mr. Xi believes that Chinese insurers are likely to allocate up to $240 billion in real estate on current estimates and metrics.
CBN believes that there has been an increased inclination towards real estate from investors in the US this year due to a growth in tenant demand and rent similar to the country’s economic growth. Therefore, the decision of Chinese insurers to minimize their overall risks with investments into the US real estate seems to be logical.
The Chinese insurers got permission from the government to buy foreign property to an extent of 15% of their total assets in 2012 and since then, the companies have preferred investing in the US real estate due to the secure nature of investments. However, CBN believes that China Life insurance’s move to invest more than $1 billion in the US real estate market is a clear case of capital flight from the Chinese economy, which could have adverse effects in the long term. If the Chinese government does not regulate the recent capital flight from its economy, it could shoot up to trillions of dollars on an annual basis that could be very detrimental to the Chinese economy in the coming years.
