Though still in its infancy, the senior housing market in China has attracted the interest of major domestic institutions and foreign players alike. However, Chinese retirees’ requirements are subtly different from those of U.S. seniors, said delegates at the recent ULI Chinese Mainland Winter Meeting, held in Shanghai.
Emerging Trends in Real Estate®Asia Pacific | 2017 Asia Pacific Summit in Singapore
Like many developed Asian economies, China has an aging population. The nation has around 200 million people over the age of 60. Historically, elderly Chinese have been cared for in multigenerational households, but that cultural pressure has been outweighed by economic pressure caused by the one-child policy, which means that recent generations of Chinese could end up having to care for their elderly parents and two sets of grandparents, without the possibility of support from siblings.
Tony Wang, chief executive of Watermark Senior Living China, a subsidiary of U.S. specialist Watermark Retirement Communities, said that the stable cash flows offered by senior living facilities and the sheer scale of opportunity in China make for an attractive combination for investors.
China Taiping Insurance Group has launched a retirement home company, Taiping Senior Living Investment, which is developing high-end senior living community projects in ten major cities of China, such as Shanghai and Wuxi. Taikang Life Insurance also has invested in the sector.
Wang said research by his company showed that U.S. and Chinese seniors have broadly similar demands for their care homes in terms of facilities and unit size (with 55 to 80 square meters [592 to 861 sq ft] being the preferred range in both nations). However, Chinese retirees assign greater importance to communal eating and activities.
For Chinese seniors, the three major requirements for their accommodation are dining facilities, space to walk and exercise, and care services.
The high and rising cost of land also is a problem for senior housing facilities in China. In the United States, most people prefer to retire to facilities close to where they used to live and where their families are. In China, the high cost of land in urban areas can make this strategy difficult.
A further complication is safety; senior care residents tend to live no higher than the third floor so that they can be evacuated safely in case of a fire. However, three-story buildings make little economic sense in China’s major cities.
The sector is heavily regulated in China. Furthermore, investors need to consider that, with the senior housing sector being a new asset class, the regulatory environment at both a local and a national level is evolving, Wang said.
Most commercial investors in senior care facilities in China are targeting the lower-care end of the market, where residents need additional services but not nursing care. Investors are also targeting the higher end of the care market, available only to wealthier members of China’s middle classes, where monthly fees will exceed RMB5,000 (US$725) and where significant joining fees will be required.
Developers and operators need to consider that their customers’ health will inevitably deteriorate, Wang said. Facilities need to either have a range of care options or be able to refer their tenants to facilities that can accommodate their nursing needs.
Wang concluded that the challenge of investing in senior living was to integrate the three elements of physical real estate, services to residents, and care services.
The conference also heard from Tang Hongliang, director at Gold Mantis, a leading Chinese interior design company, which has worked on a number of senior living facilities.
Tang showed images of a number of high-end residential facilities where the rooms and communal areas—including spas—would not have been out of place in a luxury hotel. He said, however, that many Chinese retirees preferred a more “homey” style of accommodation.
Nonetheless, Tang conceded that the industry was more advanced overseas and said that Chinese businesses involved in senior care were keen to take advantage of best practices from abroad.