Domestic life insurers will be granted more flexibility in making property investments, a move that may significantly boost commercial property transactions this quarter.
The Financial Supervisory Commission is set to promulgate new capital requirements next week regarding property investments by life insurance companies after raising the required minimum yield from 2.125 percent to 2.875 percent in November last year and introducing a complete ban days later.
Joanne Tseng (曾玉瓊), director-general of the commission’s Insurance Bureau, said the commission gave its go-ahead to a recommended yield range of between 2.375 percent and 2.875 percent, coupled with capital strength, to regulate real-estate investments.
Under the new scheme, life insurers would be required to meet stricter capital adequacy requirements, if the yields on their property investments drop below the 2.875 percent threshold, said Hsu Shu-po (許舒博), chairman of the Life Insurance Association of the Republic of China (壽險公會).
In other words, insurers would have to show an extra 10 percent in capital adequacy for each 12.5 basis-point shortfall of the 2.875 percent yield requirement, Hsu said.
The new investment requirements would have little impact on insurers with capital adequacy of 250 percent or higher given the minimum 200 percent that is currently required.
The forthcoming regulatory easing would unleash between NT$40 billion (US$1.35 billion) and NT$50 billion in the commercial property market, Hsu said.
Cathay Life Insurance Co (國泰人壽), Fubon Life Insurance Co (富邦人壽), Nan Shan Life Insurance Co (南山人壽), Shin Kong Life Insurance Co (新光人壽) and China Life Insurance Co (中壽) all indicated plans to increase their exposure to real estate.
China Life chairman Alan Wang (王銘陽) said last week that the company intends to build up property investments to 8 percent of total assets, from the current 3 percent, suggesting an extra NT$40 billion in property funds.
Commercial property transactions could hit NT$40 billion this quarter, double the level in the first quarter, after the commission lifts the investment ban next week, said Billy Yen (顏炳立), general manager of DTZ, an international property consultancy.
The new yield requirements could facilitate deals for office buildings in Taipei’s Neihu District (內湖), New Taipei City (新北市), Hsinchu, Taichung counties and Greater Kaohsiung due to their relatively low prices, Yen said.
Taipei has the lowest rental yields — averaging 2 percent because of soaring property prices in recent years.
The nation’s nine largest life insurers alone have about NT$2.7 trillion in extra funds for real-estate investments, said Jones Lang LaSalle, another international property consultancy.
Part of the money may flow to the superfices market given the lack of land in prime locations, the broker said.
Last week, Fubon Life won the auction of the superfices right for a plot near Taipei Municipal Chenggong High School with an offer of NT$2.61 billion.