Taiwanese firms are looking to invest in overseas real estate.

A reform in Taiwanese regulations is expected to increase capital flow out of the country and into international property markets. Insurance firms, which could previously only buy domestic property, are now permitted to invest in real estate outside of Taiwan as of early May. apartment

The insurance companies control a total of $450 billion in cash. However, the new legislation places a limit on how much they can invest: it can't reach 10% of shareholders' equity. In addition, the insurance provider is unable to borrow any funds for the transaction. 

Nonetheless, the new legislation is expected to result in a $2.6 billion transfer to another nation.

Analysts expect that insurers will purchase whole office buildings to improve on Taiwan's very low rental yields, which range from 2.3 to 2.5 percent. They already own around a third of Taiwan's Grade A office buildings, and foreign investment would help them diversify their portfolio.

"Ideally, they'd like to buy in bulk, and mostly office [property] because it's easier to handle," said Joseph Lin, managing director of CBRE's Taiwan office. Despite the fact that insurers have invested in other asset groups in Taiwan, such as retail and hotel properties, he believes they will seek out conservative flagship office properties with stable income streams outside of their home country.

"I don't think they'll take advantage of the situation," Lin said. "They'll continue to use core and core plus. They travel outside of Taiwan to avoid danger rather than to take on new risks."

According to CBRE, mature markets such as London, Frankfurt, New York, and Toronto are attracting interest, while insurance companies are also eyeing Shanghai for self-use investment, as the majority of their businesses are based there. Similarly, Ho Chi Minh City is a desirable location for self-use office buildings, but it is too risky a market for insurance firms to consider for other types of investments.

According to CBRE, Hong Kong would be an enticing goal, but low yields, limited availability, and fierce local competition are likely to deter buyers for the time being.

Taiwan is in the same boat as South Korea before it permitted insurance companies and pension funds to buy outside the country. Domestic investors have pushed up the cost of Grade A office property, with a huge pool of money chasing a small number of investment-grade buildings. In the last two years, insurers have purchased roughly 40% of new office properties in Taiwan.

Real estate is a good fit for insurance firms because it is a long-term investment with predictable rental yields in top-tier buildings with strong tenants. This helps insurers to ensure that they will have a long-term, consistent income stream to fulfill their policy payout obligations.

"They'll look at rental yield, real estate market transparency, how secure their capital is if they invest in these towns, and how they can get their money back on a yearly basis for their rental amount," Lin said. "They want strong asset management to take care of their assets as well."

The Taiwanese Insurance Bureau is expected to conduct a trial run of the new investment scheme, with the possibility of expanding the reach of overseas investment if the program proves successful. Even with domestic investments, insurers are only allowed to spend a maximum of 10% of their assets in real estate. However, according to CBRE, this could potentially lead to a 50-50 split between domestic and foreign real estate.

"Hopefully, our regulator will become more creative and less defensive in terms of foreign investment over time," Lin said. "This is, after all, their first time. Life insurance firms want to be certain that everything is done correctly. And before it can be more opened up, the regulators want to make sure it's done correctly."