Demographics Asia: Retiring the demographic dividend

The growth of the working-age population has provided a massive boost to the Asia-Pacific economy in recent years. Now those workers are retiring, writes Florence Chong 

The megatrends of ageing and longevity are emerging as game-changers for real asset investment in Asia-Pacific and the implications are immense. 

China already has more old people than all Europen countries combined. By 2015, the number of elderly – those over the age of 65 – Chinese had reached 200m – it is now 229m. As in the developed world, Asia’s baby boomers are beginning to retire.

Standard Chartered Bank estimates that spending by the 65-plus cohort in emerging markets could increase by more than 400% to US$4.4trn (€3.5trn) in 2030, from US$800bn in 2015. In a special report on ageing, Standard Chartered said China, where seniors’ consumption will increase rapidly, is expected to account for most of the growth. “We estimate total consumption by the 65-plus age group in China to reach US$2trn by 2030, from US$400bn now,” the report says.

Increased demand for appropriate accommodation, healthcare and services, such as home help, implies a shift from single houses in the suburbs to smaller apartments or condominiums in urban areas, then to senior housing with assisted facilities, then nursing homes and, finally, aged care.

Property types most in demand will be healthcare, public and private hospitals, medical and specialist centres and other health-related facilities – rather than, for example shopping malls.

Asia owes its transformation from world economic backwater to economic powerhouse to the ‘demographic dividend’ – an abundance of working-age people. This dividend was largely delivered by Asia’s baby boomers. Their labour helped turn East Asian countries, in particular China, into global exporters.

By 2030, however, all baby boomers will pass the age of 65, and, by 2050, the number of ageing baby boomers in Asia-Pacific will reach 1.2bn. That mass retirement marks a turning point. Economists say Asia’s economic dividend will become a ‘demographic tax’.

The International Monetary Fund (IMF) says this will translate into lower economic growth for countries with old or ageing populations.

retiring asias demographic dividend

The IMF estimates that ageing populations will subtract 0.5-1% from annual GDP growth over the next three decades in countries such as China and Japan.

A common refrain today is Asia is getting old before it gets rich: the figures reflect this. Per capita GDP of France when it moved to an aged society in 1975 was US$12,514 in today’s money. The equivalent for the US was US$48,112. In Thailand, GDP per capita stood at US$5,977 in 2014, according to the UN’s Economic and Social Commission for Asia and the Pacific (ESCAP). 

Countries with the largest older populations in 2017 were China (229m), India (126m), Japan (43m), the Russian Federation (30m) and Indonesia (23m). “As a result, this region hosts 60% of the world’s older population,” ESCAP says.

In East Asia, the oldest nation is Japan, followed by Singapore and Hong Kong. The IMF describes the speed of ageing in Asia as “especially remarkable” compared with Europe and the US. It will take China and Singapore 25 years to progress from ageing to aged societies, according to the UN. Thailand’s transition will be quicker, at only 20 years, similar to Brazil’s. For Hong Kong, already an aged society, the process took 30 years. In comparison, it took the UK 45 years, the US 69 years and France 115 years.

In short, East Asia has entered uncharted waters. The speed of ageing is equally challenging to policymakers in Asia’s most economically successful and developing nations.

The World Bank and IMF have conducted many studies to analyse the implications and quantify the costs of ageing on the economies of Asia-Pacific countries. But, as yet, the investment opportunities arising from the transition of working to retirement in Asia-Pacific are not understood – or appreciated.

Ageing Asia, a Singapore-based consultancy, has looked in depth at the sector in 15 countries to understand the economic dynamics of the ‘silver economy’. It has surveyed industry leaders for their views on how best to mine opportunities that will emerge. In a comprehensive report, produced in 2015, Ageing Asia projected a silver market potential of US$3.3trn by 2020.

Janice Chia, founder and managing director of Ageing Asia, says due to the affluence and attitudes, the new generation of older adults has higher lifestyle and care expectations to their parents – and higher household savings. The report says the increase in household savings is mainly contributed by China and Taiwan, while Japan’s household savings have reduced quite significantly.

More than 80% of 108 industry leaders who responded to the 2015 Ageing Asia survey expected the economic boom in the ageing market to occur within the next 10 years. And more than half of those respondents expected the boom to occur between 2020 and 2025.

Two years ago, PGIM canvassed more than 30 experts to identify investment themes arising from the longevity trend. At the time, David Hunt, PGIM’s CEO, said: “As chief investment officers take a long-term strategic view across their portfolios, it will be increasingly important to evaluate how to capture the benefits of secular trends, such as ageing and urbanisation.”

Global ageing will reshape consumer spending for decades to come, according to PGIM’s discussion paper on the silver economy. These changes will impact developed markets, and have a far-reaching effect on emerging markets.

PGIM says ageing is creating important new opportunities for institutional investors. It identifies two major investment themes: the evolving opportunity within real estate, and new opportunities in healthcare and technology. 

How demand will pan out is still in the realm of projections, but what is clear is that governments will be forced to harness long-term private capital to supplement public expenditure on their ageing citizens.

Industry players say governments will have to look to public-private partnerships to harness the abundance of institutional capital to fund or co-fund development of facilities for the elderly. Australia is one country that has started to tap pension savings to build public hospitals, offering multi-decade concessions to funders to operate these hospitals. 

But public-private partnerships are yet to become mainstream in many countries. The onus of caring and housing the elderly continues to fall heavily on the governments of Japan, Korea, China and elsewhere.

In China, Yvonne Wu, Deloitte China’s managing partner for life sciences and healthcare, says central and regional governments provide financial subsidies and tax incentives to private investors to enter senior housing sector.

The strain on government budgets, already apparent in some areas, will continue to increase as populations age. But, to date, examples of long-term capital entering the sector are few and far between.

Chia says: “Investment in seniors living with care services matches the long-term horizon of pension funds. It is a pity we are not seeing more of them in this market because the sector can benefit a lot from the stability and long horizon offered by these funds.”

The development of the silver market will  vary from country to country, depending on local traditions and the country’s ability to pay. With most Asia-Pacific countries becoming super-aged (older than 80) by 2030, Ageing Asia says the economic potential within Asia-Pacific and its growth could be exponential compared with the mature markets of America and Europe.

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