Real Estate

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Anbang Insurance's stealthy purchase of a stake in China Vanke, the developer in the midst of a rare hostile takeover, shows the country's insurers have found a new game -- domestic real estate.

Putting aside mainland Chinese press reports that Anbang could be linked to Vanke's largest shareholder and would-be acquirer Baoneng, news that Anbang has raised its stake to 7.01 percent in the Shenzhen-listed stock highlights the attractiveness of the long-battered sector.

This year, Chinese insurers, including Anbang and New China Life, have poured at least $5.25 billion into real estate, well above last year's figure and versus almost no such M&A activity a few years back, Bloomberg-compiled data show.

We Love Property
Chinese insurers' purchases of real estate companies are on the rise
Source: Bloomberg

Anbang, which purchased New York's Waldorf Astoria hotel a couple of years ago, has been one of the most active. It upped its stake in Sino-Ocean Land earlier this month to almost 30 percent and has now set its sights on Vanke, China's largest real estate company.

There's no doubt the nation's insurers are flush and need somewhere to spend all those premiums they keep collecting. Data from the China Insurance Regulatory Commission shows they had 11.8 trillion yuan ($1.8 trillion) in assets at the end of October.

Beijing allows them to invest 30 percent in equities, according to Citigroup, and an another 10 percent if those purchases are of blue chips. They have a long way to go:  according to the investment bank, about 14 percent has been invested in stocks so far, with bonds making up the bulk at 35 percent. (Bank deposits came in second accounting for some 22.8 percent.)

Equities are definitely a good game. The attraction of Chinese property at a time when many cities are grappling with huge gluts of unsold apartments is less clear. But for stock investors, it can be lucrative.

China Property Shares Outperform
Returns on real-estate stocks are diverging once again from the benchmark index
Source: Bloomberg

The real estate sector has dividend payouts of about 3 to 5 percent a year, companies have the ability to scale up in what's essentially a fragmented market, not to mention there's "safety with tangible quality assets in prime cities," says Citigroup.

Hunt for Yield
Insurers have bought these Chinese builders for their juicy dividends, but Vanke is an exception
Source: Bloomberg

In the six months to October, home sales surged 13.4 percent compared with the same period last year, a turnaround from the 9.1 percent drop in all of 2014. Buying into the prime property tier also looks smart at a time when economists like JP Morgan's Haibin Zhu are predicting divergence to continue, that is, home prices will rise but gains will be concentrated around the bigger cities.

Insurers just better hope the chatter that dominated last year about a property bubble doesn't return.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net