As Korea’s baby boomers retire, will property suffer?

Korea’s baby-boomer generation has begun to retire, and the impact on real estate and equities is going to surprise them, warns Woo Jaer-yong, head of the Retirement Research Institute, an arm of Samsung Life Insurance.

Samsung set up the institute last year to help it manage business opportunities related to demographics, wealth management and life insurance.

Woo defines baby boomers in Korea as those born between 1955 and 1973, which now accounts for 16 million people. The tip of this demographic pyramid has turned 55 and some people are now retiring. But the full impact will be felt sooner rather than later: more than half of the baby boomers were born in the early years, 1955 to 1963: that accounts for over seven million people or nearly 15% of the population.

Among this group, 83% of household wealth is in the form of real estate. Woo says that over time this will result in more of these properties being sold, as the owners die or downsize, and will hurt the property values of other retirees, particularly those born after 1963.

One way to deal with the prospect of under-performing real estate is to boost corporate pensions (no doubt the conclusion that the institute wanted to reach, given Samsung Life’s market-leading role in this business).

Korean corporate pensions are expected to manage $41 billion by the end of the year, with expected annual compound growth of 23% for the next few years. Pension assets should hit $100 billion by 2015.

Although this growth is healthy, Koreans are starting at a low base, and cannot count on pensions to make up enough of their pre-retirement income. The only sources for most Koreans will be from corporate pension schemes, which are young and not well funded, and from the National Pension Service.

The wealthiest segments of society are those with the most diversified portfolios. Woo says there are 150,000 people with more than $1 million in financial assets, with total financial assets at over $400 billion. This group is more interested in shifting their portfolios from real estate to financial assets, and is from where groups like Samsung Life can expect the most business.

Samsung’s research arm now has 30 staff members, but Woo says the team will grow to 100 people by the end of the year. He says the institute is keen to add foreign researchers who are demographic, retirement and wealth-management experts from countries such as the US and Sweden.