A number of factors make China a prime frontier for senior living investment, and several U.S. investors have already begun to make significant inroads into the vast market. But other key players continue to avoid China, raising questions about the advantages and disadvantages of entering the Asian scene.
Compelling aging demographics, coupled with a shift in long-standing national policy that has serious implications for the country’s caregiver supply, may just be the powderkeg that could spark even greater senior living investment in China and make the market truly explode in the years to come.
And policies put forth recently by ten Chinese ministerial departments support the infusion of private capital into the market, according to a June newsletter from Law View Partners, a boutique Chinese law firm, and IBC-joint Research & Consultancy, which has offices in China and the United Kingdom, and leads research on cultural differences.
Among other objectives, the policies are meant to “encourage private capital to enhance regional interaction in order to establish an amount of more competitive, scalable and chained senior care facilities,” the newsletter states.
But there are obstacles as well. The geographical and cultural divide between the U.S. and China is undoubtedly vast and each country’s respective senior living sectors are different beasts at the end of the day. As a result, this disparity has necessitated the development of partnerships between U.S. and Chinese investors as both attempt to navigate each other’s foreign markets.
Trailblazers and Holdouts
This spring has already seen several partnerships develop between prominent U.S. senior care providers and Chinese companies and investors, which have largely been consulting agreements with U.S. providers as Chinese companies seek to learn more about operational models, navigating regulations, among other areas of practice, policy and procedure.
Late last month, Texas-based Greystone Communities and Beijing-based investor CITIC Guoan announced an agreement, where Greystone would provide management consulting for CITIC’s portfolio of senior care projects in China.
In April, Genesis Rehab Services, a division of Pa.-based post-acute provider Genesis HealthCare, announced a partnership with Zhejiang Bang-Er Medical Group, an orthopedic hospital system in China. As part of a Memorandum of Understanding between the two companies, Genesis will bring its U.S.-based model of evidence-based rehabilitation services to Bang-Er’s 11 orthopedic hospitals in China.
Meanwhile, other major senior housing investors have balked at investing in China.
Despite Genesis’ foray into Asia, its landlord Health Care REIT (NYSE: HCN) doesn’t have plans to cross over into the Chinese market any time soon, according to comments made by Health Care REIT CEO Tom DeRosa during a first quarter call with analysts.
“We have so much on our plates in the U.S., Canada and the U.K. that it’s hard for us to be thinking about places as far away as Asia,” DeRosa said during the call. “Asia today just does not fit prominently on our radar screen, but we do pay attention to what’s happening over there.”
Q&A: Evaluating the Opportunity
To find out how big the market opportunity is in China, SHN talked with one Hong Kong-based investor in U.S. senior housing properties — with interest in expanding in the Asian markets and on-the-ground insight into them — to learn more about what ingredients are helping build an appetite for more senior living investment there.
Horace Ma is the executive director at Chevalier International Holdings Limited, a company that began as a construction and engineering firm 40 years ago, which is now a conglomerate with a diverse business portfolio that includes construction and engineering, insurance and investment, property, lifestyle, food and beverage as well as agriculture sectors.
SHN: How long has Chevalier been interested in the senior living market?
HM: Chevalier has been exploring various business opportunities in recent years and in 2011, it had made its first investment in the senior living market in the United States.
SHN: To what extent is the company’s involvement in the senior living market today, and in how many projects has Chevalier invested?
HM: Chevalier currently owns a portfolio of 23 senior living properties in the United States with 20 in North Carolina and 3 in Oregon. With a total of approximately 1,900 beds covering assisted living, memory care and skilled nursing, all properties are run by our local operators. Chevalier will continue to actively seek investment opportunities in the United States as well as start to explore other places such as Canada and Hong Kong.
SHN: What is the opportunity for Chinese senior care investors to learn from U.S. senior living operators? Vice versa?
HM: As the Chinese market is still at its infancy, there are plenty of areas in which Chinese investors can learn from U.S. players, such as regulation, pricing structure, operational models, education to the elderly and their family members, etc.
On the other hand, U.S. companies can learn from Chinese companies the “way of doing business in China,” which very often involves making business decisions and running a business in an undefined and rapidly changing environment.
SHN: What are some key differences between projects in China and the U.S.?
HM: Most of the time, the number of beds in any project in China would be much larger than those in the U.S., so the capital, human and all other resources requirements would be much higher than they may expect.
You could assume that in any second-tier cities, a 10,000-square-meter development project with about 200 beds (single room), the total investment would be at least RMB 100 million (around USD $16 million) because land premiums in China are not cheap now.
SHN: If you had to quantify it, how big would you say the opportunity is for the senior care market in China?
HM: In 2015, there are 221 million [people] age 60+ in China and the portion of China’s population that is elderly will surpass the numbers of an advanced economy such as the U.S. by 2030. By 2050, there will be more people over age-60 in China than the total population of the United States.
In comparison, the supply of senior housing is relatively weak. In 2013, institutional care homes provided 4.2 million senior housing beds, or only 2.2% of the 60-plus population in China vs. 5%-7% in developed countries.
SHN: Are there other factors driving senior housing demand?
HM: In addition, the one child policy limits birth rates and creates the so-called “4-2-1” family structure, i.e., four grandparents, two parents and one child, which makes it difficult for adults to take care of their parents and grandparents.
SHN: What about obstacles that U.S.-style senior living providers might face in China?
HM: The red tape of government and the traditional value of emphasizing family would still pose a key challenge to the development of the Chinese senior housing market.
SHN: All things considered, how do you judge the long-term prospects for senior living in China?
HM: The cultural attitude is also changing and becoming more accepting toward sending the elderly to senior living facilities. With a rapidly urbanizing population, a growing middle class and the continuous health care reforms, the future looks bright for senior care investors.
Written by Jason Oliva