aia moves into real-estate development Insurer branches out for long-term investment

Thomas White, executive vice president and general manager of AIA, yesterday said the company recently concluded a deal with Metrostar Property to purchase 4 rai of land on the corner of Sathorn Road and Soi Saint Louis 3 for Bt1.4 billion.

The Insurance Commission has allowed life insurers to allocated up to 15 per cent of their insurance reserve to the property sector.

AIA plans to construct a 40-50-storey office building with a use area of 38,500 square metres on the site.

The design for the project is expected to be completed in a year, and then the company can firm up its capital budget for its first property project.

"We can't say the exact figure right now, but if the investment of the new office building does not reach our ceiling at Bt40 billion, we're willing to invest the remaining money in other property projects. AIA is still confident in the Thai economy, so we decided to invest huge money for a long-term investment in the country," he said.

Anucha Laokwansatit, deputy general manager and chief investment officer, said AIA's insurance reserve stood at Bt270 billion, so its investment ceiling in real estate is roughly Bt40 billion. It has not made a decision yet on how much it has to invest in developing a premium office building in that prime area.

"We want to develop that prime area to be a landmark of Thailand. The office rent for this building could climb to Bt700 per square metre, from Bt400 to Bt500 now," he said.

The rate of return on an office building is similar to property funds, which is 8-9 per cent, he said.

Veera Burapachaisri, CEO of Metrostar Property, said the developer would use Bt378 million of the Bt1.4 billion from this deal to pay back debt with Bangkok Bank, while the rest will be used to purchase land for the next projects.

Including bank loans, the company will have Bt2 billion on hand to fund ongoing projects in addition to investing in new ones.

"We expect to generate a net operating profit this year after we had a loss the year before, because we could make a gain of more than 100 per cent for only the land deal with AIA due to the land's cost of Bt600 million," he said.

Metrostar ran a net loss of Bt95.52 million last year and continued to lose Bt25.02 million in the first quarter this year.

Veera said Metrostar would go back to focusing on developing condominiums and serviced apartments along mass-transit routes. The company expects to generate Bt3 billion this year: Bt700 million from two projects - Saint Louis Grand Terrace and Baan Ravipa - and Bt2.3 billion from its property fund.

Metrostar will launch the Sathorn Vista Bangkok Marriott Executive Apartments next quarter and resume selling Metro Avenue Ratchayothin and Sukhumvit 66 next month.