China's elderly care sector brings maturing investment opportunities

For investors eyeing opportunities in fast-growing real estate markets, they don’t come much bigger than China’s elderly care sector.

April 23, 2018

For investors eyeing opportunities in fast-growing real estate markets, they don’t come much bigger than China’s elderly care sector.

A forecast by Oxford Economics calculates China’s population aged 65 and above will rise from 150.7 million in 2017 to 220.2 million by 2027. Based on World Bank population projections, that would see China’s elderly grow from 10.8 percent to 15.6 percent of the country’s total inhabitants.

Fuelled by this trend, the country’s elderly care services market is set to top 13 trillion yuan (US$2.06 trillion) by 2030, according to the Chinese Academy of Social Sciences.

Investing in China’s health and elderly care sector provides direct access to the “compelling demand drivers associated with the Chinese demographic dividend,” says Steven Xing, Head of Alternative Investments – Greater China with JLL.

And with operating leases of aged care homes often extending over 20 years, they provide a stable income stream that guards against the impact of market volatility.

Targeting mid-to high-end elderly care projects in tier-one cities, especially Shanghai and Beijing, provides investors with a good entry point, says Xing. “Both cities have a large proportion of seniors with higher income and education levels.”

Investors move in

The robust returns and long-term stability on offer are attracting widespread interest, with institutional investors such as insurance companies, along with funds and REITs all already looking at the sector.

Last year saw Singapore’s Banyan Tree Holdings and Chinese real estate giant Vanke announce a 50/50 joint venture to own and manage Banyan Tree properties in mainland China, which will look to develop senior living and active ageing projects.

More recently, property firm Greenland Hong Kong has partnered with Australian elderly care company Provectus Care and Shanghai International Medical Centre to establish an Alzheimer’s-focused medical institution. Reports indicate it will also create a rehabilitation and aged care community in the Yangtze River Delta in the second half of 2018.

Services lack maturity

Yet while the market profile and development prospects are appealing, the sector’s growing pains come with challenges for investors. In particular, levels of supply and demand between the high-end facilities and operating services fail to match up at present.

“Most senior home builders and real estate developers – which are the major force in development and construction – are developing the capabilities to operate the facilities,” says Xing. “However, professional elderly care service institutions and operators are becoming a rare resource. Given the sector is still in the early stage of development, the supply of experienced service personnel is also limited.”

Potential investors will need to better position their projects and operations to identify potential problem areas and ensure there are available resources, says Xing. “For example, services could be segmented by assisted living, memory care, senior apartments, independent living, respite and day care, and dementia care,” he added.

As in any emerging sector, investors prepared to get in early and overcome the obstacles – often by partnering with a local provider that can offer on-the-ground expertise – will be well placed to take advantage of the opportunities. And with those aged 65 and above in Asia Pacific projected to increase by 40,000 people per day over the next 10 years, it is a market primed for enormous growth right across the region.

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