Domestic life insurance companies now have more financial leeway for property investments, as the required minimum yield on real-estate investments have been cut from 2.97 percent to 2.419 percent, effective on Tuesday, the Financial Supervisory Commission (FSC) said.
The deregulatory revisions came after local insurance companies complained the previous requirement made investment in real estate impossible in light of soaring commercial property prices across Taiwan.
The FSC agreed to lower the threshold in October last year, but the new formula needed to go through a 60-day public notice period before going into practice, it said.
Photo: Taipei Times
Local life insurers used to be the main players in Taiwan’s commercial property market, but stayed on the sidelines in recent years after the central bank raised interest rates five times to tame inflation and indirectly drove up the minimum yield for real estate investment to 2.97 percent.
The commission arrived at the old formula by taking cues from interest rates on the post office’s two-year time deposits plus a premium of 125 basis points.
Now the commission keeps the premium of 125 basis points but uses the average interest rates of the post office’s two-year time deposits for the past five years, effectively muting the impact of rate hikes in 2022 and 2023.
The revision brings down the yield requirement by 55 basis points to 2.419 percent, the commission said.
The relaxation is intended to mitigate pains induced by short-term interest rate changes for life insurers, it said.
Life insurers need to utilize idle money to stay financially healthy and cover assorted claims from policyholders, it added.
Commercial properties proved attractive investment targets in recent years on strong office demand from technology and financial firms, analysts said, adding that there has been a lack of new office space in Taipei’s central business districts.
Rather, life insurers shifted their focus to logistics and warehousing facilities as well as industrial land plots, and collected rent incomes of 3 percent to 5 percent.
The easing would provide much-needed funds into the commercial property market that observed 7 percent decline last year, according to property broker CBRE Ltd Taiwan (世邦魏理仕台灣).
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