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According to recently released United Nations data, South Korea, Singapore, and Hong Kong are the countries with the fastest aging populations in the world; Thailand ranks sixth and China tenth. The potential of a shrinking working-age population is forcing these countries' governments to reform their pension systems and encourage personal savings.
“As the working-age population shrinks in the coming years, global savings investment will increase,” according to David Green-Morgan, JLL’s Global Head of Financial Markets Research and author of a new report on the correlation between demographics and real estate investment. “This is particularly evident in China, where the workforce decline mirrors the situation in Western Europe, the United States, Canada, Japan, and Australia.”
"In most countries in the Asian region (with the exception of Australia), retirement assets as a percentage of GDP remain below the global average," he said. "Going forward, we will see an increase in the allocation of retirement funds to real estate as a result of an aging population, pension reforms, and the development of capital markets."
The real estate investment market has witnessed several new trends over the past 10 years as the sector has become truly globalized, supported by income-generating assets, and the allure of diversified portfolios, lower risk, and a hedge against inflation. The definition of mainstream real estate investment has expanded significantly and now includes healthcare, aged care, student housing, residential real estate, private and public real estate distressed debt, and has established housing estates outside the United States.
Part of the reason for this expansion in investment sectors, where volumes have pushed near 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 had a major impact driving up property values in the United States and Europe. Last year, the largest inflows of real estate capital came from the Middle East and Asia Pacific. Qatar and the UAE dominated Middle Eastern capital, while in Asia, the majority of capital came from China, Singapore, Hong Kong, and South Korea. One of the most active buyers in recent years has been a Chinese insurance conglomerate, including China Life, PingAn, and Anbang Insurance. Their global strategy is supported by changes to domestic regulations in February 2014, allowing Chinese insurance companies to increase their maximum allocation of capital to real estate (both domestic and overseas) from 20 to 30 percent of total assets.
Among the emerging Asian economies making changes to their pension systems are Vietnam and Indonesia, while Singaporean bank DBS and Manulife have just announced a 15-year agreement to market insurance products for the middle class in rapidly aging Asian nations.
"Asia's demographic shift means 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, which are still considered a nascent phenomenon," Green-Morgan said.
The restructuring of Japan's $1.1 trillion Government Pension Investment Fund (GPIF), the world's largest pension savings fund, which primarily holds low-yielding Japanese government bonds, is also expected to increase its allocation to real estate. Among other changes, GPIF announced a new investment strategy that will allocate an additional 5% to alternative investment forms, including real estate. Both Japan's private and public investment funds appear to be following GPIF's criteria for portfolio balancing, while also boosting demand for real estate.
