China Allows Insurers to Invest in Long-Term Rental Housing

The insurance regulator has decided to allow insurers to invest in long-term rental-housing projects in select cities — part of a broader effort to bolster the rental market and rein in house prices.

The China Banking and Insurance Regulatory Commission said in a statement published Friday that insurance firms now can invest directly in projects based in Beijing or Shanghai, or invest through equity or debt investment plans established by asset management firms.

Besides the two metropolises, insurance firms are allowed to invest in rental projects in the Xiongan New Economic Area and other large cities in which the population influx outstrips population outflow, according to the statement.

“The policy will bring more funding sources to the rental housing industry,” said Yan Yujing, research director at Shanghai-based research firm E-House China R&D Institute. “It’s also an important guidance for the direction of insurance capital. It will help insurance capital take part in rental housing reform,” he added.

In December, the central government said it will encourage developers to build more rental homes and allow greater flexibility in how land is used to better respond to housing demand. The aim is to stabilize home prices by better controlling supply.

Rental properties have been mostly offered by individual homeowners rather than institutional players due to low returns on investment. Most developers have traditionally preferred a build-and-sell model, which offer quick profits that can be plowed into the next project immediately.

The regulator stipulated that entities that borrow from debt funds established with insurers’ capital must have a cash flow sufficient to cover the principal and the interest.

Insurance capital placed in equity funds can only go to firms for which rental housing projects are core assets, and the equity of the rental projects involved should not act as collateral for a third party.

Insurance firms should consider their own assets, liabilities, solvency and regulatory liquidity requirements when making long-term investments in rental housing projects, the statement said.

Contact reporter Pan Che (chepan@caixin.com)