Taiwan Insurers Have $10 Billion Warchest for Foreign Property

Taiwan insurers have the financial capacity to invest at least $10 billion in overseas properties after the island’s government relaxed rules in April on real estate investments abroad, according to an industry group.

Insurers including Cathay Life Insurance Co. have already submitted plans to buy more than 10 overseas buildings for approval by the island’s financial regulator, said Paul Hsu, chairman of the Life Insurance Association of the Republic of China. Most of those deals include office buildings in major Chinese cities such as Shanghai and Beijing, he said.

Taiwan allowed insurers seeking stable returns to invest in real estate overseas after limiting them from buying locally to curb commercial property prices. Fubon Life Insurance Co. (2881), a unit of the island’s second-biggest financial company, said last week it plans to buy as much as $3 billion of overseas properties over the next four to five years.

“For the whole industry, the number can definitely be over $10 billion,” Hsu, a former lawmaker with the ruling party Kuomintang, said in an Oct. 4 interview. “We’re now trying to build a base in some big Chinese cities before moving into the second-tier ones there. The former provide good rental and stability, while the latter would also give us potential capital appreciation.”

Insurers accounted for about 40 percent of all commercial real estate transactions in Taiwan before the regulator in November banned them from buying locally, according to CBRE Group Inc. An index compiled by broker DTZ Holdings Plc shows office prices in Taiwan rose to the highest since at least 2005 at the end of 2012.

Infrastructure Projects

The Financial Supervisory Commission recommended six cities in April for insurers to buy properties. These include New York, London, Toronto, Frankfurt, Shanghai and Ho Chi Minh City.

Cities in Europe and the U.S. will be “difficult” for Taiwan’s insurers because of regulatory restrictions and high capital gain taxes, Hsu said.

In August, the government lifted some restrictions, including a ban on buying of domestic commercial property by insurers with financial irregularities. Fubon Life, Cathay Life and Shin Kong Life Insurance Co. are among insurers that had their ban on property investments lifted this year.

While parts of the restrictions were lifted, they are still required to buy only real estate with an yield of more than 2.875 percent.

“If this minimum yield doesn’t get lowered, it’s impossible to see any major investment by insurers into domestic properties,” said Hsu, adding that the regulator is now encouraging insurers to invest in public infrastructure projects.

Real estate investment in Taiwan rose 13 percent in 2012 to NT$302 billion ($10.3 billion), fueled by demand from insurers, according to data compiled by CBRE. The figures will probably drop to NT$250 billion this year because of falling transactions in the first three quarters as a result of the ban on insurers, CBRE said.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net; Cindy Wang in Taipei at hwang61@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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