The nation’s commercial property market might continue to stall unless financial regulators agree to lower yield requirements for life insurance companies, analysts said yesterday after two top-tier office buildings this week failed to secure any buyers.
The Financial Supervisory Commission’s Insurance Bureau said it would review the restriction by the end of the year after Taiwan Insurance Institute (保發中心) wraps up a study on the issue.
“The yield requirement should have an inverse relationship with investment risks and a 2.5 percent minimum is more reasonable,” from the current 2.805 percent, in regulating property investments by domestic life insurance companies, said Tony Chao (趙正義), managing director of international property consultancy Jones Lang LaSalle’s Taiwan office.
The threshold accounted for the failed auctions of two office buildings in Taipei’s Xinyi District (信義), although both guarantee long-term stable rental incomes, Chao said, referring to the Shinkong Manhattan World Trade Building auction on Thursday last week and Shin Kong Mitsukoshi Department Store (新光三越百貨) A8 building auction on Tuesday.
Shin Kong Life Insurance Co (新光人壽), owner of the two buildings, aims to divest the assets to make up for losses from equity investments, company executives said earlier.
Yield requirements stand at about 2.1 percent and 2.2 percent for prime-location properties in Hong Kong and Singapore, but rise to 3 percent in Tokyo and 4 percent in Beijing and Shanghai, Chao said.
However, properties in Taiwan carry permanent ownership, making them safer investments, compared with leasehold rights for properties in Singapore and China, he said.
Market observers said the asking prices of the two buildings were reasonable at NT$9 billion (US$276.43 million) and NT$28 billion respectively, given their central location and the sharp inflation of liquidity worldwide following the global financial crisis in 2008.
Shin Kong Life is willing to concede a little bit, but will not cut prices drastically to meet the yield requirement, Chao said.
Though swamped with cash totaling about NT$4 trillion, local insurance companies have not acquired a full office building for the past three years, he said.
“Sitting on excessive idle cash is not favorable for insurance companies or their policyholders,” Chao said by telephone.
Michael Wang (王維宏), an account manager at Global Asset Management Co (全球資產), an asset management unit of Sinyi Realty Inc (信義房屋), agreed that the yield requirement is having a chilling effect on the market.
That CTBC Bank (中信銀行), the main subsidiary of CTBC Financial Holding Co (中信金控), postponed the auction of its old headquarters building in the same district, after lowering the floor price by NT$5 billion to NT$15.2 billion, is likely due to concerns over a failed auction, Wang said.
Insurance Bureau Deputy Director-General Shih Chiung-hwa (施瓊華) said that the blame for the failed auctions should not be solely pinned on the yield requirement.
Rather, the sluggish market might have more to do with soaring property prices and the economic slowdown, she said.
“The bureau will review the restriction later this year and adjustments are pending the result of a study by the insurance institute,” Shih said by telephone.
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