China’s property developers are learning the hard way that eldercare doesn’t add up
An expanding elderly population does not make senior housing a safe bet for investors, especially in China.
Because of the gap in personal wealth and cultural preferences, China is unlikely to experience ballooning demand for elderly care homes, unlike western economies where the sector is seen as a beneficiary of demographic trends, according to analysts.
As mainland developers aggressively push into the business of caring for the aged, warnings are being sounded of a senior housing glut expected to emerge in near future.
China’s population of retirees, those above age 65, will likely swell to 330 million by 2050 from 110 million in 2010, a rate of societal ageing which outpaces many developed countries, according to the World Health Organisation.
The ageing demographic has made senior housing a hot spot for investment in the past several years.
China Vanke, the country’s second-largest home builder, is operating 140 eldercare projects across the country, with ambitious plan for expansion.
In Beijing, the property company is seeking to boost the number of nursing homes it operates to 20 from three in the coming two to three years.
Meanwhile, rival developers Greentown, Evergrande and Sino Ocean Land, as well as conglomerate Fosun, have also invested in senior living.
In December, China Resources Land announced it had “officially entered the senior housing market” after it won a bid to build a senior care centre in Shenyang.
Supportive policies have further fuelled the wave. In December, the State Council said the government will back private and foreign investment in the eldercare industry and allocate more land for care institutions.
However, the sector so far seems tough to crack, with some developers abandoning projects midway through development while others struggle to profit.
In 2014, China Overseas Holdings halted construction at a senior housing project after encountering difficulties in finding enough residents, according to a report in China Business.
Meanwhile, Vanke, along with its peers, is still trying to eliminate losses eight years after setting up its first senior care project.
“To be honest we haven’t made any money,” Vanke president Yu Liang said at a press conference on Monday after presenting the firm’s 2016 financial results.
“I have not seen any mainland company that has made profits from senior care, but we have to do this, since Chinese society is ageing rapidly.”
Analysts say investors may have overestimated the number of care institutions China needs.
The nation had about 4.7 care beds for every 100 people above 65 at the end of 2015, compared with a ratio of 5 in Japan and 5.9 in the US, according to DBS.
Under a government plan for elderly care, the number of beds will grow to between 5.2 and 5.9 by 2020, more than enough for the small group of elders who are willing to pay for one.
“We don’t think China really needs that much senior living space,” said Ken He, an analyst at DBS. “The number of eldercare beds has kept up exponential growth lately, leading to our concerns of a nationwide oversupply in near future.”
China’s seniors are “getting old before getting rich”, meaning they are unlikely to afford expensive care services the same way their western counterparts do, He said.
More Chinese people above 65 are living in rural areas than in large megacities, and their life expectancies also fall behind the US and Japan, according to the DBS report.
At the same time, a cultural tradition whereby children look after their ageing parents also weighs on the demand for institutional care.
In Japan, which has a similar family culture, 97 per cent of elderly were living in private homes in 2010, although most of the care fees are covered by the country’s social insurance system.
And in China, about half of the eldercare beds were vacant at the end of 2015, official data showed.
“A psychological barrier exists,” He said. “In addition, the majority of elderly people in China would prefer keeping their life savings for their offspring to paying for senior housing rental or membership.”
Currently, mainland developers are testing a variety of business models, from selling flats labelled as senior-friendly to charging monthly fees for providing living space and care services.
Analysts say the sector also lacks experienced staff to manage the projects and competition for qualified personnel is likely to drive up costs.
To stand out, home builders have to shift their focus from erecting buildings to enhancing operating capabilities, according to He.
“We don’t think there are huge opportunities in the development and construction area,” He said. “Developers might need to change from the mindset that is prevalent in the residential segment and focus more on operations if they really want to be the first movers in the industry.”