China’s elderly care market offers rich pickings for private developers

Under-used and often run-down properties are being converted across the country into affordable facilities to look at China’s ageing population

PUBLISHED : Tuesday, 25 October, 2016, 8:40pm
UPDATED : Tuesday, 25 October, 2016, 8:40pm

Every weekend in Hexihui, a condominium complex for elderly residents in the northwestern outskirts of Beijing, the private rooms beside the canteen area are packed and noisy with family chatter.

Sons and daughters, brothers and sisters, after a busy week’s work, arrive to visit their ageing parents.

When they all leave, an odd quietness descends, and once again it’s the team of care workers who return to help look after the 300 full-time residents, many of whom are in their 80s.

Hexihui was developed and is run by the elderly care offshoot of Poly Real Estate, which isn’t the only property investment firm now getting involved in this specialist care sector.

But still largely untapped, the market has massive potential across China, and is quietly changing how this huge country is caring for its senior citizens.

Entrenched Confucian culture has for centuries fostered the thinking that looking after your older relatives and parents into their dotage was quite simply the duty of everyone, while sending them off to such facilities which specialise in looking after older people was a violation of their dignity.

And for many years this has prevented the growth of these types of facility, which are commonplace in many western societies.

When thousand-year-old traditions meet modern reality, however, governments, non-profit organisations and enterprises have to find ways to circumvent the inevitable clash.

By last year, China’s so called baby-boomers – those older than 65 – had grown to 144 million or 10.5 per cent of the population.

With people living longer, and generally being more healthy, this burgeoning group is putting immense strain on not only the country’s publicly funded elderly care system, but also their offspring.

Thus the birth of this new type of care: very much an integration of medical and nursing care services for families, a mix of institutional and family care for elderly relatives.

“China’s current reality means that care for the elderly is still predominantly by the family,

with institutional care needed in the minority of cases,” said Fu Linjiang, president of Hangzhou-based developer Bluetown Group, who also chairs the elderly living committee of China Real Estate Association, a semi-official organisation.

“Between the two, however, there is huge room for this integrated type of care to grow, offering massive opportunities to the private sector.”

Developers such as Poly Real Estate have now seriously started targeting the sector, although it is still finding its way in figuring out the best format.

The company initially targeted seniors who could take care of themselves, when the Beijing Hexihui site opened in December 2012. But its audience of those in their sixties of seventies didn’t want to leave their families, just yet, as long as they could take care of themselves.

This pushed Hexihui to adjust its position, to attracting elder residents who have lost the ability to be independent, and the occupancy rate swelled.

By July 2015 its rooms were fully occupied, and it upgraded the facility to accommodate more. By April this year it had 300 older residents living there full-time.

Poly Real Estate is now most likely to target the medium- and high-end of the market, with residents generally having to pay a 100,000 yuan deposit and then around 6,000 yuan in monthly fees that include food, and nursing services, although some nursing fees vary according to the intensity of care.

Those fees, along with its full occupancy, helped the business break even this year, after just three and a half years.

But if land acquisition costs are taken into account, the project is far off recovering its investment, said Shen Yi, assistant general-manager of Poly Health-care Industry Investment.

“The project is commercially viable because it is backed by Poly Real Estate, which plans to grow the elderly care wing to differentiate itself from other developers.

“This will also produce synergy with the parent company’s residential sale business, and invigorate the company’s underperforming assets,” Shen said.

Beijing Hexihui was previously a hotel owned by Poly, which has greatly reduced its overall development costs and investment needed.

Shen said the model, if it proves successful, could well be copied at some 100 Poly properties that are underperforming.

“Land acquisition costs are the biggest headache, though,” Shen adds, when asked how government can offer support to private firms thinking about entering the sector.

“In first-tier cities, where the potential commercial returns of elderly care are biggest, land costs are much too high. But if you move into smaller cities where land is cheaper, projects actually become less attractive for the elders themselves.”

In first-tier cities, where the potential commercial returns of elderly care are biggest, last costs are much too high. But if you move into smaller cities where land is cheaper, projects actually become less attractive for the elders themselves
Shen Yi, assistant general-manager, Poly Health-care Industry Investment

That dilemma has pushed up the prices of the facilities to unaffordable levels for many ordinary pensioners.

Fu Linjiang says the lack of affordable land, limited credit and lack of any tax-policy support from the government has made many of the higher-end facilities less full than they should be, while cheaper beds can be hard to find.

Investors and operators also complain to him that as much as 70 per cent of these commercial projects are unprofitable.

Various methods are being tried by developers to overcome the commercial pitfalls, with under-utilised or idle buildings being converted into elderly complexes, even some on industrial sites, the most popular business model.

Bluetown has also embedded hospitals, clinics and rehab facilities within large-scale residential developments, so units can be sold at a premium.

While others are imitating the model used by insurance firms, by selling wealth-management products to people in their 50s or 60s.

Investors can enjoy annual returns while being eligible for a bed in their own-build facilities.

Zhu Fengbo, the chairman of China Suncity, said the products his company sells are used to finance the facilities, at which investors can live the first ten years without paying any fees.