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Bridging the gap: aged care, investment prospects
By Sam Crispin |
March 27, 2012, Tuesday
|
Print Edition
Print Edition
CHINA'S aging population needs more and better retirement living options.
The number of elderly moving up the ranks year by year is such that they cannot possibly all live with relatives. Social attitudes to caring for the elderly are changing, and negative perceptions about senior housing are being eroded as better quality product becomes available.
Unlike the majority of today's retirees, future retirees will have accumulated capital in the form of real estate and savings. At the same time, younger generations have less time and greater financial pressure, so are less well equipped to care for their parents. With this background and out of necessity, consumer acceptance and demand for senior housing are growing.
Economic efficiency also demands a change to the current geriatric care model. Long-term nursing and rehabilitation care for the elderly is more effectively and efficiently provided in senior housing with healthcare facilities than in tertiary care hospitals. Options are becoming available in a shift that is opening up opportunities for businesses that can deliver the right combination of real estate, healthcare and hospitality tailored for the needs of the Chinese market.
Demographic trends are resulting in an increasing dependency ratio - a measure of the number of retirees compared with the total labour force. In 2010, China's aged dependency ratio was 13 percent, compared with 20 percent in the US. By 2050, the ratio for China is expected to reach approximately 50 percent. The critical issue is how many of China's aged want to live in a community catering for their specific needs and can pay for it. We estimate demand for mid- to high-end senior care beds to be over 13 million by 2050.
In the current emerging market, real estate is the main driver of revenue. Services such as housekeeping, catering and senior activities have to be provided at close to hospitality levels to convince residents to move in and not move out again, but they are expensive to provide. While consumers show willingness to pay for the asset itself, they are price sensitive when it comes to paying for the additional healthcare and hospitality services.
There are a number of emerging approaches to delivering senior housing projects in China. One model is for a number of apartments within a residential compound to be retained for exclusive use of senior residents. This "insert" approach enables the elderly to live close to the younger generations within the same compound but not under the same roof. In this model, grandparents can still enjoy easy daily interaction with their children and grandchildren, whilst having access to specialised activity centres, healthcare, day care and housekeeping.
Retirement community
A fully comprehensive approach is to develop a continuing care retirement community project, providing the full range of senior housing options from independent living through to acute care. The best example in Shanghai is the Cherish Yearn community in Kangqiao, which operates a membership model.
Healthcare providers have a role to play in providing real estate developers with a solution for their need to offer healthcare facilities. The management of senior housing operations, rather than direct investment in the real estate and healthcare facilities, is also a potential entry route. China has few established third-party operators, and those that do exist are relatively lacking in experience.
At the current stage of development, many projects are real-estate driven, with the senior care facility allowing the developer to charge a premium for the rest of the apartments in the development.
The care element requires cross-subsidy from the real estate profits but are essential. Other services such as health clubs, housekeeping and catering can add additional revenue streams, but most owners of senior living projects break even on many of these services and typically outsource delivery and management to a specialist provider.
Due to the absence of favorable policies supporting for-profit senior care facilities, local private investors are exploring structures to run the business in a sustainable way. Some current operating models are based on separate property and operating company structures, but complex legal and tax issues can arise on such structures.
The number of elderly moving up the ranks year by year is such that they cannot possibly all live with relatives. Social attitudes to caring for the elderly are changing, and negative perceptions about senior housing are being eroded as better quality product becomes available.
Unlike the majority of today's retirees, future retirees will have accumulated capital in the form of real estate and savings. At the same time, younger generations have less time and greater financial pressure, so are less well equipped to care for their parents. With this background and out of necessity, consumer acceptance and demand for senior housing are growing.
Economic efficiency also demands a change to the current geriatric care model. Long-term nursing and rehabilitation care for the elderly is more effectively and efficiently provided in senior housing with healthcare facilities than in tertiary care hospitals. Options are becoming available in a shift that is opening up opportunities for businesses that can deliver the right combination of real estate, healthcare and hospitality tailored for the needs of the Chinese market.
Demographic trends are resulting in an increasing dependency ratio - a measure of the number of retirees compared with the total labour force. In 2010, China's aged dependency ratio was 13 percent, compared with 20 percent in the US. By 2050, the ratio for China is expected to reach approximately 50 percent. The critical issue is how many of China's aged want to live in a community catering for their specific needs and can pay for it. We estimate demand for mid- to high-end senior care beds to be over 13 million by 2050.
In the current emerging market, real estate is the main driver of revenue. Services such as housekeeping, catering and senior activities have to be provided at close to hospitality levels to convince residents to move in and not move out again, but they are expensive to provide. While consumers show willingness to pay for the asset itself, they are price sensitive when it comes to paying for the additional healthcare and hospitality services.
There are a number of emerging approaches to delivering senior housing projects in China. One model is for a number of apartments within a residential compound to be retained for exclusive use of senior residents. This "insert" approach enables the elderly to live close to the younger generations within the same compound but not under the same roof. In this model, grandparents can still enjoy easy daily interaction with their children and grandchildren, whilst having access to specialised activity centres, healthcare, day care and housekeeping.
Retirement community
A fully comprehensive approach is to develop a continuing care retirement community project, providing the full range of senior housing options from independent living through to acute care. The best example in Shanghai is the Cherish Yearn community in Kangqiao, which operates a membership model.
Healthcare providers have a role to play in providing real estate developers with a solution for their need to offer healthcare facilities. The management of senior housing operations, rather than direct investment in the real estate and healthcare facilities, is also a potential entry route. China has few established third-party operators, and those that do exist are relatively lacking in experience.
At the current stage of development, many projects are real-estate driven, with the senior care facility allowing the developer to charge a premium for the rest of the apartments in the development.
The care element requires cross-subsidy from the real estate profits but are essential. Other services such as health clubs, housekeeping and catering can add additional revenue streams, but most owners of senior living projects break even on many of these services and typically outsource delivery and management to a specialist provider.
Due to the absence of favorable policies supporting for-profit senior care facilities, local private investors are exploring structures to run the business in a sustainable way. Some current operating models are based on separate property and operating company structures, but complex legal and tax issues can arise on such structures.
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