(Yicai) Oct. 24 -- Chinese real estate developers have been selling assets to insurance companies to raise money amid severe debt problems, as the property sector remains sluggish and default is still a big risk for many builders. 

Shanghai Wanda Commercial Plaza Property gained a new majority shareholder at the end of last month, after Dajia Life Insurance bought the stake from Dalian Wanda Commercial Management Group. The insurer has bought several commercial properties this year from Wanda Commercial, which has also been selling its stakes in cinemas and equity investment firms to other investors to ease its financial strain.

Developers need to speed up asset sales given the extent of their debts and the problems in the real estate sector, Liu Shui, head of business research at the China Index Academy, told Yicai. 

Commercial real estate in the heart of first- and second-tier cities should have plenty of room to appreciate in the future after the industry’s recent severe adjustment, and this is attracting insurers with sufficient low-cost funds to invest, he added.

Insurers have much lower cost of funds than other asset management firms, said Zhang Hongwei, founder of Jingjian Consulting, and this allows them to make medium- and long-term investments in high-quality assets. It is also the main reason why most buyers of the assets being sold by developers are insurers, Zhang said.

After buying the assets at rock bottom prices, the insurers can then make their money back via asset securitization, Zhang noted.

China’s real estate sector is still in crisis, Zhang added, and only when demand picks up in first- and second-tier cities can the market in other cities also recover.

Efforts must be made in two respects to solve the financial problems of real estate developers, Liu said. One is further loosening policies in the sector to boost sales, and the second is more policies to help developers raise money, he said.

Editors: Tang Shihua, Tom Litting