Around 78 billion yuan ($12 billion) of insurance capital is expected to enter Beijing's "economically affordable" housing market, marking further investment in the property market.
Seven insurance asset management companies, led by China Pacific Insurance Assets Management Co, will raise the sum to fuel development of the construction of low-cost housing in the capital through a debt-financing plan and take land under the control of the Beijing Land Reserve Center as a mortgage, according to sources from the center on Tuesday
The first phase of capital, around 10 billion yuan, has registered with the China Insurance Regulatory Commission (CIRC) and purchases are due to begin some time in June, according to the source who declined to be named. This is part of the "Land Plan", under which seven insurers will cooperate with Beijing municipal government to provide land for development of low cost housing. Insurers, however, will not be involved in the development stage.
This is also the first time that insurers have jointly embarked on large-scale debt financing to fuel the development of this type of housing.
"The return will be a bit lower than the one-year benchmark lending rate," said a management source at PICC Asset Management Co. "Because of the climbing interest rate, the return is not so attractive for us."
The one-year benchmark lending rate currently stands at 6.31 percent. The return for Chinese insurers between January and November in 2010 was 4.42 percent, according to CIRC.
After revisions to the insurance laws allowed insurers to invest in the property sector, they have been actively preparing and seeking projects. Earlier reports said 100 property investment deals have been registered with the CIRC since the revisions came into force.
Eric Pang, head of Beijing Investment at Jones Lang LaSalle, said property investments made by insurers will increase this year, after 12 months of preparation, as many of them consider economically affordable housing a major investment target.
Wu Yan, chairman and president of the PICC Group, said earlier this month that the company will increase its investment in the affordable-housing sector this year, and several deals with are close to completion.
"Though the investment return from economically affordable housing is flat, the risks surrounding a debt-financing plan of this kind are pretty low, so insurers can achieve a balance between return and risk," said John Wong, director of investment services at Colliers International.
