Nan Shan Life Insurance Co (南山人壽) yesterday made its first real-estate investment after an ownership change a year ago by winning the contract for a development project next to the Taipei 101 tower with the aim of elevating its corporate image and presence in Taiwan’s most expensive district.
The insurer, indirectly owned by Ruentex Group (潤泰集團), whose business interests encompass retail, textiles and construction, plans to turn the plot into an environmentally-friendly, multipurpose commercial complex named “Nan Shan Plaza,” company vice chairman Du Ying-tzyong (杜英宗) told a media briefing.
“The company has never taken part in a major public construction project and decided to seize this opportunity, which we believe can help the company boost its reputation, as well as yield handsome returns,” he said.
Nan Shan secured the 50-year lease to develop three plots of land that currently house Exhibition Hall 2 of the Taipei World Trade Center and two adjoining parking lots for NT$26.89 billion (US$896.27 million), defeating rival Cathay Life Insurance Co (國泰人壽) and pushing leasehold premiums to a new high.
The floor price of NT$25 billion and additional development costs scared away domestic developers and other life insurance firms like Shin Kong Life Insurance Co (新光人壽) and Fubon Life Insurance Co (富邦人壽), analysts said yesterday.
Construction of the two buildings — which will house retail, entertainment and recreational facilities — is valued at between NT$10 billion and NT$20 billion, raising total development costs to between NT$40 billion and NT$50 billion, Du said.
Nan Shan Life is confident the investment will generate up to 6 percent in returns after construction is completed in four years, Du said, admitting that at present, that goal is unachievable.
Rent rates for Grade-A office space in the district range from NT$3,000 to NT$3,400 per ping, far lower than similar space in Tokyo, Hong Kong, Singapore, Shanghai and Beijing, suggesting ample room for rate hikes once the economy stabilizes, he said.
The complex, to be built with the latest “green technology” with the help of Japanese architects, would bring material change to the district, significantly boosting its economic value, Du said.
“We see tremendous hidden value in the development project that others fail to spot,” he said.
“I cannot go into further details because they involve business secrets,” Du added.
Billy Yen (顏炳立), general manager at DTZ, an international property consultancy, said the biggest benefits of the investment are that it would help Nan Shan lift its profile and reduce its idle funds.
Limited land supply and investment options leave insurers no choice but to compromise for leasehold contracts to lower their idle funds, Yen said.
“Returns of 3 to 4 percent are more realistic in four years’ time,” he said.
Nan Shan would have to charge rental rates of NT$4,000 to NT$4,500 per ping per month to meet the target of 6 percent returns, said Michael Wang (王維宏), an account manager at Sinyi Realty Inc’s (信義房屋) asset department.
“No one can tell what will happen over the next four years in light of poor economic visibility at home and abroad,” Wang said.