#Retirement Communities – challenges and opportunities in developing and operating #senior housing in China
At the recent Real Estate Investment World China 2012 conference Sector Focus – Retirement Communities session on 20 March at Beijing, China, James Sheperd of Colliers International, Jim Biggs of Honghui Senior Housing Management Company, Charles Marshall of Merrill Gardens China and Christopher Alberti of Taconic Alliance LLC gathered together to discuss on the challenges and opportunities in developing and operating senior housing in China, with respect to:
- Positioning China as the upcoming destination for senior living communities
- Conducting due diligence in attracting the right joint-venture partners, investors and financiers
- Exploring suitable revenue models in the cultural, social and financial context of China
In summary, the panelists had come to agreed that continuing care retirement communities (CCRC) offers a long-term contract which provides for housing, residential services and nursing care. There are three different market segments in senior care industry: Independent living for seniors from 55 to 70; independent living with system living for seniors from 60 to 80; system living for 80 and above. Different services and care system can be designed to suit the needs of each market segment.
Based on statistics from the US senior housing model, the profit margin for different segments are of the following: Independent living at 34%, independent living with system living at 37% and system living at 32%.
Target customers will be the seniors and their children. The challenge remains to ascertain if the children are willing to send their parents to nursing homes.
We will need to bear in mind that CCRC is in the service business rather than the real estate business. The first care facility for elder people will be opened in Shanghai in June 2012. And this care facility offers the experience of apartment living and skilled nursing. Due to high demand, operators forecast to open ten of these care facilities in Shanghai. They are now in the process of seeking great partners who care about the elderly and are prepared for a long -term joint-venture as immediate returns are not that great.
Moreover, the one-child policy deeply affects senior housing development in China. By offering high quality services and the best living environment, the children should realise that senior housing does improve the quality of living for their parents.
By respecting the domestic market environment and understanding the local culture, CCRC tries to design a unique Chinese product, which best represents international practices. The training, operating and financial models can be transferred from the Western states to China. However, they will have to be re-designed incorporate new facilities based on local needs.
It is important that we must not forget senior housing is not a pure real estate business but a service-oriented one. Many senior housing companies failed due to a lack of focus on operations. To adopt a successful business model requires a stable yet long-term relationship between the seniors and product.
Furthermore, land prices for senior housing affects the business in the long-term. The key lies in how fast developers take up this model. The demand for senior housing will accelerate through the process as what the US went through. In the long run as the model developed, returns can be even higher as more people are willing to pay premium as per in the US.
Get more insights on which China cities and sectors present the best prospects for property transactions and joint-ventures at Real Estate Investment World Asia 2012, taking place from 26 – 28 June at Marina Bay Sands, Singapore. Visit www.reiwasia.com or download conference brochure for more information.
