Waldorf Astoria just the start for Chinese insurers

Eased regulations open door to overseas deals

The US property market recorded another high-profile purchase by a Chinese buyer this week, when Hilton Worldwide Holdings Inc announced Monday that it would sell its Waldorf Astoria New York hotel to an insurer from China. Under the terms of the deal, Anbang Insurance Group has agreed to pay $1.95 billion for the famed Manhattan property, setting a record for the highest price ever paid for a single hotel in the US, while Hilton would continue to operate the hotel for the next 100 years.

The move comes as the latest in a string of splashy purchases of iconic buildings in New York by Chinese buyers over recent years. Last year, Fosun International bought One Chase Manhattan Plaza for $725 million from JPMorgan Chase, and SOHO China co-founder Zhang Xin paid $1.4 billion for a 40 percent stake in another downtown landmark, the General Motors Building. This year, with the Waldorf Astoria deal included, Chinese buyers will have poured $2.7 billion into New York real estate, surpassing the $2.6 billion spent last year, according to a Bloomberg report.

While high-profile transactions like the Waldorf Astoria deal allow Chinese companies to quickly make a name for themselves in the global arena, some observers are concerned that history could be repeating itself. They liken recent Chinese real estate acquisitions to Japan's buying spree of famous US properties in the 1980s, which included Mitsubishi's purchase of Rockefeller Center. Today, many see this wave of Japanese spending as symbolizing the peak of the country's economic bubble.

It is worth pointing out that the situation is totally different with the deal between Hilton and Anbang. It marks not only the first arrival of a Chinese insurer into the US real estate market, but is also the third overseas real estate acquisition by a Chinese insurance company, following Ping An Insurance's $388 million purchase of the Lloyd's of London building in the UK in July 2013 and China Life's acquisition of an office tower along London's Canary Wharf in June of this year. A number of other Chinese insurers are also reportedly looking abroad for high-quality commercial properties in international metropolises like New York, London and Toronto, according to local media.

The stakes are high under loosening regulations. Only two years have elapsed since China's insurance regulator relaxed certain restrictions on overseas investment by domestic insurers, meaning that Chinese insurers have likely only just begun snapping up overseas real estate assets. According to a statement issued by the China Insurance Regulatory Commission (CIRC) in late 2012, overseas investment options for domestic insurers have been widened to include real estate, with a ceiling for overseas investment set at 15 percent of their total assets. Yet, as Zeng Yujin, director of the insurance fund management regulatory department at the CIRC, said at a press conference in February, Chinese insurers had so far invested less than 1 percent of their assets abroad, indicating great potential for future investment growth.

The present looks to be an ideal time for Chinese investors to enter real estate markets in the US and Europe, which are still recovering from the 2008 financial crisis. A strengthening Chinese yuan also seems to be facilitating the emerging trend of domestic buyers mopping up assets overseas. Data from real estate services firm Jones Lang LaSalle show that China's outbound investment in real estate totaled $5.4 billion during the first six months of this year, already exceeding the $4 billion transaction figure recorded for the whole 2012.

With a volatile property market and limited investment channels at home, it makes perfect sense for Chinese companies seeking long-term stable returns to look abroad and target big international cities for high-quality assets. More Chinese insurers will surely join their fellow investors over the coming years.

Nevertheless, overseas properties represent more than just solid returns and good bargains, there are risks in these assets as well. When pursuing properties overseas, Chinese insurance companies should take a cautious approach to such investments. Only through due diligence investigation, thorough consultation with property and legal experts and detailed property assessments can insurers minimize the risks to their portfolio diversification strategy.