The insurer's property portfolio is made up of real estate investment trusts, unlisted real estate funds and direct physical assets. To get global exposure to the asset class, the firm leans on REITs and unlisted funds, but prefers Hong Kong assets in its physical property portfolio, which reflects its U.S. and Hong Kong dollar liabilities, Mr. Chan said.
In the past year, the insurer slowed down deployment into physical property as "achievable yields become unattractive compared to corporate bonds, for example."
The firm uses single A-rated corporate bonds as a benchmark, and while corporate bond yields have risen in the past year, property rental income yields have not caught up yet, he said.
Investment-grade corporate bond yields-to-maturity have risen dramatically to 4.28% on Tuesday, compared to 2.63% a year prior, according to the S&P Hong Kong Investment Grade Corporate Bond index.
"Property yields are adjusting but they are not adjusting as fast relative to the pace of interest rate rises largely owing to the lack of transactions," Mr. Chan explained. "The market has become quiet, and consequently, there are less reference points for property valuers and consequently, the valuation adjustments — some of them have not come down."
Average monthly rental rates for the office leasing market fell to HK$54.80 per square foot in February, compared to HK$57.50 the year before, according to research by real estate company Jones Lang LaSalle IP Inc.
The retail and residential sectors have picked up in Hong Kong, but industrial buildings are still under pressure as total imports in the administrative region fell 30.2% year-on-year in January, and total exports fell 36.7%, according to the Hong Kong Census and Statistics department.
The insurer does not invest in residential property because it "does not fit out risk-reward assessment." Instead, it sticks to "more resilient sectors like data centers, logistics and cold storage. These are the properties that tend to have more stable long-term return," Mr. Chan said.
He added leases tend to be at least three years long, which cannot be achieved with residential property.
Despite the short-term pressures, however, he still believes that over the long term, real estate is "still a good asset class for insurance investment because they offer long-term cash flow from rental income … and also long-term capital appreciation."
Mr. Chan also believes the China's reopening of the borders will benefit other economies in Asia. "In Hong Kong in particular, a lot of sectors are quite exposed to China, through trade, import-export, capital flows etc. … And as the Hong Kong economy rebounds, the corporate sector will also benefit. We do expect a recovery in, for example, the retail sector, which was very depressed over the last few years."
"As the Chinese growth improves, we believe there are more opportunities for investors. In fact, we are discussing with our investment team to look into potentially accelerating our search for opportunity in China in (Greater Bay Area)-related private investments," he added.