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A number of mainland developers are also building homes for the elderly to diversify their income sources because of the market potential and the policy risks in the private residential market. Photo: Bloomberg

Foreign retirement home operators eye China's ageing population

Overseas operators are lured by the mainland's ageing population but are trying to work out an ideal business model amid vague guidelines

International retirement home operators are showing increasing interest in the mainland but experts say it will take a while to find a successful business model.

The country's ageing population is expected to reach 34 per cent of the total by 2050, making this an attractive business segment. The central government's guidelines issued last month also indicate it is keen to encourage private capital in the sector.

The guidelines are aimed at speeding up the development of the industry, calling for local governments to work closely with private companies and encouraging innovative services and financial products.

"[The guidelines] are still a little bit vague," said Bromme Cole, a senior housing consultant who runs Hampton Hoerter.

Under other foreign investment guidelines issued recently, international operators may be allowed to form a wholly owned foreign enterprise to own and operate sites designated for senior housing, said Cole, who recently authored about the mainland's senior housing sector.

"We were particularly happy to see the State Council saying they plan to allocate land for senior care," said Cole Wright, managing director of Merrill Gardens, a US-based operator of retirement communities. It is building its first joint-venture senior housing project in Shanghai, due to open next year.

International operators are working with mainland developers but some of them are not interested in senior housing business as such. Many developers, said Cole, are trying to sell faster by bundling units specified for seniors in regular development projects rather than building senior-only projects, said Cole.

Some mainland developers, such as China Vanke, Greenland Group, and Fosun Group, are building senior housing projects to diversify their income sources because of the market potential and the policy risks in the private residential market.

But Cole said not one business model has proven to be successful so far even though he has been approached by many foreign players interested in the sector.

"It is always difficult to judge when to enter a market.

"Enter too early and you are forced to wait for demand; enter too late and you will have entrenched competition," Wright said.

"Merrill Gardens has chosen to enter China relatively early because we believe it takes time to truly understand this market."

The company targets the mainland's high-end market, charging from 6,000 yuan (HK$7,570) to 12,000 yuan a month. Services include meals, housekeeping and nursing.

"We believe we have the right model and have several projects in development that will not take long to reach profitability," Wright said.

He said that he believed high-end segments would be able to draw private capital but lower-end housing could meet the same fate as a decade ago, when private players refused to join this segment.

"For the high end of the market, private companies are the best service providers and are very interested in China. That segment will certainly be different from affordable housing development," said Wright.

To attract private capital, experts say, the central government is now exploring asset securitisation and exit mechanisms for funds that invest in the sector.

"We are not sure about the timing to enter the industry, and we think the business model and profit source would largely depend on greater policy clarity," said Adam Rush, property consultant DTZ's director of consulting, North Asia.

Cole said he believes the senior housing market will eventually be dominated by mainland insurance companies because they understand the market and are happy with lower profit margins but stable rental income.

There will be a few successful foreign operators, Cole added, who would give up their existing profit models in their home countries and find a specifically mainland model.

This article appeared in the South China Morning Post print edition as: Foreign firms eye old-age market
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