The aging global population will impact the changes of the investment picture on the global real estate market over the next decade as an increasing number of insurance and pension funds revise their strategies to accommodate the new generation of retirees. By 2050 there will be more people older than 55 than the entire global population in 1950. They will need a steady income to provide them with financial security throughout their retirements.
“This is where real estate plays the key role; it provides the type of investment pensions systems seek: lower risk, more predictable income streams that allow them to meet their liabilities”, claims David Green-Morgan, Global Capital Markets Research Director at Jones Lang LaSalle, an investment management company. JLL’s research forecasts that the number of real estate transactions will exceed a trillion dollars by 2020 with 700 billion dollars in 2015 mostly due to institutional investors providing more capital in this sector. Currently, they account for 20 percent of the market, but Green-Morgan emphasises that he expects this “to significantly increase in the future since they are dealing with larger and larger investments.”
As more and more investors gather in the sector in order to diversify their portfolios, protect themselves from inflation, reduce the risk and find secure income streams, they will have to seek new possibilities. Asian buyers, their pension funds and insurance companies, have already become a major force behind the growing real estate prices in the USA and Europe. The real estate will also become globalised and it is predicted that by 2020, more than 50 percent of all real estate investments made will be by foreign buyers – amounting to 500 billion dollars annually.
Investors are also expanding their net due to the lack of investment possibilities occurring on the market. “We anticipate that, due to the lack of significant increase of investment options, the capital will move in many different directions in order to achieve the desired real estate investment perspective, including joint ventures, partnerships and acquisitions, and alternative sectors, such as health, retirement accommodation and increasingly, residential buildings”, adds Green-Morgan.
The combination of a decreasing work force and increased number of people living longer is a known fact to most governments. For example the European pension funds have greater outflows than inflows on a net basis. Therefore, planning ahead for the older population is the sole realistic option for all governments. Australia, Canada, New Zealand, Malesia and most of Asian countries are preparing government programs for contribution investments on behalf of their aging populations. Vietnam and Indonesia are implementing changes in their pensions systems that are currently inadequate, while DBS, a bank in Singapore, and Manulife have recently announced a 15-year regional distribution program that will trade insurance packages tailored to the needs of the middle-aged middle-class population.
Indeed, Asia will be home to half of the 10 fastest aging countries in the next five years and South Korea, Singapore and Honk Kong have been especially affected. “As the working age population decreases in the upcoming years, global saving investments will grow”, says Green-Morgan. “This is especially noticeable in China where the decrease of the working force mirrors the situation in the Western Europe, the United States, Canada, Japan and Australia.”
Keeping this in mind, the insurance systems and pension funds in this region should invest up to 300 billion dollars into the global real estate markets by 2020 in order to meet their upcoming obligations. “In most of the Asian countries, the pension assets, as GDP percentages, remain below the global average”, says Green-Morgan. “Looking ahead, we will see increased allocations by the regional pension funds into real estate as the result of the aging population, pension reforms and capital market developments.” Even though this is just one of the processes that is the result of direct demographic changes, both in developed and developing nations, the key is proper management. “More of us will retire than at any other point in history. This has huge implication in terms of planning, investing and executing our pension plans. This is why investing into real estate is becoming more important for institutional investors”, concludes Green-Morgan.
The mentioned trends in real estate transactions tied to the aging population should also be considered under the Croatian circumstances. However, it is important to emphasize that an average Croatian citizen, regardless of the changes occurring in the pension system, can directly influence his/her standard of living through the process of buying/selling real estate. Residential needs and desires change throughout the life cycle of a family or an individual. Actual cases in some of the most developed countries show that empty nesters often decide to sell their homes or apartments in order to purchase smaller real estate as they feel that their real estates do not suit their altered living circumstances as they are expensive and impractical. By selling a large apartment and purchasing a small one, an individual may realise revenues and increase the home budget. Furthermore, proper management of the new smaller real estate can reduce the costs associated with its maintenance during the retirement years.
