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Investing in the grey boom: a role for senior living real estate in Asia


Real estate, given its functional and intrinsic value, is a corollary of social forces. It is the bricks-and-mortar response to how we live our lives and the goods and services we buy.


 

As an asset class, it naturally evolves as society evolves. For instance some recent trends are the emergence of data centres in response to the rise of cloud computing, value propositions in building design being influenced by a growing environmental consciousness and urbanisation driving land use.

Demographics are arguably the most interesting of all these forces. Given demographics’ power to shape society’s demand for real estate, it should be a key consideration for any long-term investor in the asset class.

Back to Asia, and the age-old issue

The greying of Asia is a challenge for the region. The social changes and improvements in healthcare that accompanied rapid industrialisation and economic growth have driven lower fertility rates and higher longevity. This has led to the significant demographic transition towards aged populations.

Japan’s situation is well recognised given it started its transition to an ageing population 20 years ago. China commands attention as a result of its size, but also due to the debate that surrounded its approach to population control through the now discontinued one child policy. Korea’s demographic outlook is less widely appreciated, despite its status as the fastest-ageing society in modern history.

The ageing populations of Japan, China and Korea are conducive for greater investment in senior living real estate. Yet these are societies that have traditionally cared for ageing parents in the family home. Real estate investors must keep this in mind.

New realities challenge cultural norms

The cultural tradition of filial piety – a Confucian concept of respect for elders – has played a meaningful role in Asian societies for centuries. This is a tradition that emphasises multigenerational households with adult children as the providers of support and care for their elderly parents. However, this family support system is increasingly being challenged on a number of fronts.

First, the declining birth rate suggests elderly parents will have fewer children on whom they can rely for support. For example, the one child policy in China has led to the 4-2-1 phenomenon – one child has to be responsible for two parents and four grandparents. This presents a significant burden that threatens the practicality of the family support system.

Second, urbanisation trends and the unequal geographic distribution of job opportunities mean children may have moved away from their ancestral homes to gateway cities such as Tokyo, Seoul and Shanghai. For example, Greater Tokyo has seen population increases for 20 years and continues to grow, while the population of Japan as a whole is in decline.

Third, the overall increase in workforce participation rates across Asia means there are fewer people available to provide in-home care for elderly family members on a regular basis.

For example, the female workforce participation rate in Korea has increased from 46% in 1980 to 57% in 2014 while the male workforce participation rate has remained steady.

Fourth, there is also increasing focus on the efficacy of in-home care by family members. In practical terms, caregivers are not trained health professionals or specialists in geriatric health. As such, even the most well-intentioned person may find it challenging to identify, monitor, and address the needs of elder family members.

There are a number of long-term structural trends that question the sustainability of this approach, and prevailing attitudes towards institutional care will be forced to give way.

However, if the shift in attitudes to senior living is a positive for the sector, the unknown is whether it’s an opportunity for listed real estate investors.

Investor considerations

The potential emergence of senior living as a large, investible sector in Asia underscores how real estate can provide investors with access to meaningful, long-term trends.

Structural shifts of this nature will inevitably produce winners and losers. In addition, as is the case with senior living real estate, a trend might be new to a particular region but have been seen before elsewhere in the world. As such, expertise matters in picking those winners and understanding trends as they become increasingly global.

Listed real estate investment managers that are able to tap into experience and information across regional bounds within the same global team have a distinct advantage especially if cross-border investment activity happens.

Investors should therefore consider managers that are set up to generate and share local insights by design, with a clear focus on building a genuine global portfolio.

About the author
Christopher Deves joined AMP Capital in 2009 and is responsible for representing the firm’s Global Listed Real Estate business to clients and investors. Prior to his current role, Christopher was based in Hong Kong and managed AMP Capital’s business development initiatives in Asia ex-Japan. Christopher holds a Bachelor of Commerce and Bachelor of Arts from the University of Sydney. He also previously spent over two years studying in Asia, including at Beijing International Studies University in China and Korea University in Seoul, Korea.
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