The 60+ demographic is blowing up on a global scale and will encompass two billion people by 2050, according to United Nations data, and nearly 440 million of those people will be found in China.
The scope of this growth is unprecedented, and with a senior living sector still in the early stages of development, it represents huge opportunity for American operators, investors, and developers to branch out and venture abroad into the “Middle Kingdom.”
Similar to the U.S. and India, China’s senior population is already significant—and still growing. As of 2011, China’s 60+ demographic numbered more than 172 million; in less than 10 years, that number is expected to balloon to nearly 241 million.
In recent months, there’s been a flurry of activity in the Chinese health care space to develop more models of senior housing and care to prepare for the influx of elders who will need—or want—retirement accommodations. And while breaking into a foreign market is no easy feat, there’s plenty of opportunity for knowledgeable American players to get a piece of the action.
China already has both government- and privately-owned nursing homes and elder care services, but demand is growing for an expanded senior living service segment, with communities that offer a higher standard of living along with high quality medical and nursing services and lifestyle options, according to Michael Qin, a lawyer with Shanghai-based Co-effort Law Firm.
The Regulatory Environment
Qin advises foreign investors and developers to have a basic knowledge of the Chinese regulatory environment before moving into the senior care industry, as the general rules for running any business—including those for contracts, employees, and taxes—are similar in most aspects to those for running a senior care business.
However, it’s a “headache” to explain a “systematic” regulatory environment, says Qin.
“Some regulations are only under discussion or drafting, and most of the current ones are very broad and general, resulting in different practices and interpretations from local authorities,” he says.
The two most important areas to be aware of are real estate and senior care/medical services, Qin advises.
In 2006, China implemented a restrictive policy on foreign investment in real estate, according to the lawyer, which makes real estate investment procedures subject to several government approvals. Additionally, there are other requirements and restrictions on land acquisition, foreign currency loans, and investment amounts, he warns.
Apart from that, the many basic laws and regulations surrounding real estate development, leasing, and construction are ones that many investors and developers should already know, Qin says.
American Operators Leading the Overseas Charge
Last September, Seattle, Wash.-based Emeritus Senior Living announced its joint venture with Columbia Pacific Advisors to form Cascade Healthcare, which became the first foreign entity to gain permission from the Chinese government to open a for-profit senior care community in China.
Columbia Pacific Advisors’ principal investor, Dan Baty, has previously called the need for senior care in China “staggering,” and Serena Xie, a Shanghai native who is now the managing director of Cascade Healthcare, says there are “tremendous opportunities” for companies such as her own to develop the country’s senior care model.
China’s senior living market is still at its infant stage, she says, and with its citizens’ income going up significantly, entering a “decent” community with international standards has become an acceptable option. Additionally, today’s Chinese working class is busier than ever, with no time to spare for taking care of aging parents, says Xie.
Barriers to Entry
The language barrier and finding—and competing for—the right talent to both develop and work in a senior living community could be potential issues, Xie warns.
And although India’s government recently removed restrictions on foreign construction development, the same isn’t true for China.
“Barriers to entry for senior living development that entails construction are a Byzantine approvals process and a nearly impossible land acquisition process,” says Bromme Cole, a managing partner at Hampton Hoerter, a leading senior care advisory firm in China.
Qin, the Shanghai-based lawyer, elaborated more on the lengthy time frames for getting approval on certain types of development.
“Usually, a permit to open a senior living community goes through four approval [processes] from different authorities: the Commercial Bureau, Commerce and Industry Administrative Bureau, Civil Affairs Bureau (on an institutional senior care facility), and Health Bureau (if skilled nursing or medical service are provided inside facility),” he said.
And if each step of this normal procedure is followed, the process can take more than a year. But in what Qin calls a “lucky situation” in China, “Regulators give a very unclear definition on senior care development, which makes most of the cases more simple—investors can only go through the first two steps, which normally only takes a couple of months to obtain license to do business on caregiving and health consulting.”
He says most foreign investors and developers are currently starting with those first two steps for senior living (rather than care) models, before considering the addition of skilled nursing or medical and rehabilitation services.
Opportunity for Foreign Players
While independent or “lifestyle” developments (i.e., projects that won’t be providing health care services) don’t have as much of a barrier compared to more complex care services projects, aside from the process of obtaining available land and approvals, “every developer in China is onto this game,” says Cole.
That leaves the assisted living and sub-acute care sector wide open for development, and the opportunities for foreign senior living developers in this space are “significant” and “numerous,” he continues.
“The more acuity a developer offers, the more immune you are to competition in China,” Cole says.
Partnering Foreign Experience with Local Knowledge
There are still “enormous” barriers to the higher-acuity sector because it’s still so undeveloped. In fact, echoing what Qin said about a lack of consistent, comprehensive regulations for the senior care industry, Cole says it’s a little-understood business without a meaningful amount of care expertise.
Still, higher acuity developers have an easier time with real estate issues in China, Cole says, because arranging long-term rentals of buildings, or renovations for nursing capacities of existing structures, is much easier than new development.
Partners can be “a minority partner as the permits required for renovation are much easier to obtain,” says Cole.
Entering into a joint venture with a local player could be a solution, but even that requires serious consideration.
“Lifestyle developers or independent living developers must be very careful. If a Western developer embarks into real estate development single-handed, then the likelihood of success is low; real estate development is an insider’s game in China,” he says. “A partner is highly advised but also carries serious risks that cannot be overstated.”
Written by Alyssa Gerace
This article is sponsored by the Assisted Living Federation of America (ALFA) as part of its efforts to advance excellence and explore topics impacting the future of senior living. For more information about ALFA, visit www.alfa.org.