April 20, 2016

The population in Asia Pacific is aging at a much faster pace than aged care is currently developing in the region and this is presenting a whole realm of investment opportunities to invest in senior-care infrastructure

While Japan has the highest proportion of older adults in the world, South Korea, Singapore and Hong Kong are the world’s fastest-aging countries; Thailand is ranked sixth and China is number 10, based on recent numbers from the UN. As the region ages, its healthcare infrastructure remains under-developed.

“In the Asia Pacific region there are a limited number of developers who are specializing in the sector,” says Noral Wild, JLL’s Head of Health and Aged Care in Australia. “We have observed that developers who have traditionally only focused on residential and hotel development are turning their attention to the opportunities that the seniors living sector is bringing.”

A study of the needs and the impact of an aging demography can’t be complete without looking at Japan, where one in three people will be 65 and above by 2030.

Even with Japan’s well-documented aging population, the country’s healthcare infrastructure has been slower to establish itself when compared to other OECD markets such as the U.S. and Australia, says Nick Wilson, from JLL’s Japan’s Capital Markets team.

An interesting development in Japan is that senior living requirements will need to be more heavily focused towards those aged over 75 while those aged between 65 and 75 fall as a percentage of the overall population, notes Wilson.

Between 2015-2020, this segment of the population is expected to grow by nearly 500,000 each year. This segment currently accounts for 15.6 million people, or 12.4 percent of the total, however it is expected to grow to 22.4 million people by 2030, accounting for nearly 20 percent of the population. These demographics are driving demand for over 50,000 new Aged Care beds per year, and further provisions will be required beyond this anticipated increase in utilization rates.

The population aged 65-74 has over the past few decades grown rapidly to 16.7 million people or 13.3 percent of the total. However growth in this segment is expected to slow, with the population expected to plateau in just a few years at 17.3 million people (13.9 percent of the total), according to JLL’s latest research report.

Over 6 million people are classified as “care required” and this segment is expected to grow by 50 percent between 2014 and 2030 to around 9 million. In terms of expenditure on elderly care costs. The Japanese government provides around 90 percent of all nursing care expenditure through the Long Term Care Insurance scheme (LCTI) and other payment schemes. According the Ministry of Health, Labour and Welfare, overall expenditure on elderly care services will grow from 9 trillion in 2014 to 20 trillion [US Dollars] by 2024.

“The investment thesis for the sector is also arguably the strongest of all asset classes in Japan. There is a huge level of structural demand due to the demographic outlook and an undersupply of public non-profit facilities. The sector is also well backed with government funding covering a large portion of overall occupier costs, and further incentives are being provided for operators to expand into new facilities. This also makes it attractive for real estate investors seeking to work with operators on their expansion plans, particularly due to the long term lease contracts that offer a stable income stream,” says Wilson.

“Furthermore, Aged Care assets have the highest stabilized yield of all core sectors across the real estate spectrum. This seems mispriced given the long-term structural demand requirements and non-discretionary nature of both the residential and health care components that make up aged care facilities.”

Elsewhere in Asia, governments are taking a multi-faceted approach that includes raising the retirement age, increased healthcare public spending, improving education and training and reallocating resources towards higher-value-added activities to address the challenges faced by an aging population.

While governments are making provisions for spending on senior care and supportive services, developers are well placed to take advantage of existing opportunities.

“The key to these developers being successful in the sector is ensuring they partner appropriately with operators who can deliver the appropriate management and deliver the care services required once the project is developed and occupied,” says Wild.

“The future of a care facility is one which feels like a home yet offers all of the required services and technology to allow for the residents to enjoy the best quality of life possible despite their various ailments as they age,” she adds.

Asia’s aging population is also opening up opportunities in medical care centers, robotic technology and training colleges. The region’s aging population isn’t just having an impact on the aged care markets, Asia’s pension and insurance funds are also set to invest more money into real estate to meet future obligations caused by a shrinking workforce.

Based on JLL estimates, insurance and pension funds in the region are set to invest as much as US$300 billion into global real estate markets by 2020 as they assess their ability to meet future obligations.

Click here for JLL’s latest global report on demographics and real estate

Noral Wild
Head of Health and Aged Care in Australia, JLL


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