According to data recently released by the United Nations; South Korea, Singapore and Hong Kong are the countries with the fastest aging population in the world; Thailand ranked sixth and China ranked 10th. The possibility of a population with a shrinking working-age population has forced the governments of these countries to reform their pension systems and encourage personal savings.
“As the working-age population shrinks in the coming years, global savings investment will increase,” says David Green-Morgan, Director of Global Financial Markets Research at JLL and author of a new report on the relationship between demographics and real estate investment. “This is particularly pronounced in China, where the decline in the workforce mirrors the situation in Western Europe, the US, Canada, Japan and Australia.”
“In most countries in the Asia region (with the exception of Australia), pension assets as a percentage of GDP remain below the global average,” he said. “Going forward, we will see an increase in pension fund allocations to real estate as a result of population aging, pension reform and capital market development.”
The real estate investment market has seen several new trends over the past 10 years as the sector has become truly global, supported by assets with stable income streams, and the appeal of diversified portfolios, lower risk, and a hedge against inflation. The definition of mainstream real estate investment has expanded significantly and now includes healthcare, senior care, student housing, residential real estate, private and public real estate distressed debt, and has established group housing outside the United States.
Part of the reason for this expansion in investment sectors, which has pushed volumes close to previous peaks, has been the release of new capital from around the world.
Asian buyers, particularly sovereign wealth funds, pension funds, and insurance companies, have been a major driver of rising real estate values in the United States and Europe. Last year, the largest sources of real estate capital came from the Middle East and Asia Pacific. Qatar and the UAE dominated Middle Eastern capital, while in Asia, capital came mainly from China, Singapore, Hong Kong, and South Korea. Among the most active buyers in recent years have been Chinese insurance groups, including China Life, PingAn, and Anbang Insurance. Their global strategy was supported by a change in domestic regulations in February 2014 that allowed Chinese insurers to increase their maximum allocation to real estate (both domestic and foreign) from 20 to 30 percent of total assets.
Among emerging Asian economies making changes to their pension systems are Vietnam and Indonesia, while Singaporean banks DBS and Manulife have just announced a 15-year agreement to market insurance products to the middle classes of rapidly aging Asian nations.
“Asia’s changing demographics mean that more people are planning for retirement than at any other time in history, and more and more capital is being deployed into private pension funds, particularly in Asia’s emerging economies, where this is still a new phenomenon,” said Green-Morgan.
The restructuring of Japan’s $1.1 trillion Government Pension Investment Fund (GPIF), the world’s largest pension savings fund, which holds mostly low-yielding Japanese government bonds, is also expected to increase its real estate allocation. The GPIF has announced a new investment strategy that, among other changes, will allocate an additional 5% to alternative investments including real estate. Japan’s public and private investment funds are likely to follow the GPIF’s lead in rebalancing their portfolios, which will also boost real estate demand.
