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Taiwan insurers flock to local property with lower rates, Savills says

Savills
By Hui Ching-hoo   
October 23, 2020

Taiwanese life insurers invested US$3.49 billion in real estate, mostly in domestic property, between January and September, more than 2½ times the $1.32 billion total for all of 2019, according to UK-based property consulting firm Savills plc.

Insurers who had turned to the foreign property market after the Financial Supervisory Commission (FSC) set a minimum return on local real estate investments to cool speculation are shifting back to the island as interest rates decline because it’s easier to meet the threshold, Erin Ting, director of Savills Taiwan, says in an interview with Asia Asset Management.

The minimum annual return requirement for real estate investment is equivalent to Taiwan’s two-year fixed deposit rate plus 1.125 percentage points. The regulator imposed the requirement in 2012.

This March, Taiwan’s central bank cut the benchmark deposit and loan rates by a quarter percentage point, bringing the two-year deposit rate to an all-time low of 0.97%.

Ms. Ting says insurers had found it more difficult to invest in local real estate after the minimum yield was set eight years ago, and some had turned to commercial property in London and other major European cities.

They began investing in these markets in 2014, with $3.62 billion worth of investments over the next four years.

But they are now shifting their focus back to domestic properties as local interest rates dropped,” Ms. Ting says, adding that the minimum yield for property investments, which was as high as 2.875% in 2012, is now 2.095%.

She says insurers are also worried about foreign currency risk, especially with the decline in the British pound because most of their property investments overseas are in the UK.

The FSC, which has to approve all foreign investments by Taiwanese insurers, has also become more prudent with approvals amid ongoing market volatility.

Ms. Ting says commercial property investments in Taiwan are more attractive to insurers because they offer higher yields. The average yield on office buildings in the Taipei central business district ranges between 2.3% and 2.6%.

She says some insurers are also taking on the role of property developer because the government is putting up more large-sized land in prime areas for public tender and these have strong leasing potential.

For example, Fubon Life Insurance acquired a 24,796 square metre commercial and retail property in eastern Taipei for NT$28.2 billion ($983.8 million) in the second quarter, one of the largest land deals this year.

Taiwan’s life insurance industry had around NT$29.3 trillion of total assets at the end of 2019, according to FSC figures.