Young, Rich Move Chinese Senior Housing Toward Tipping Point

Interest in China’s senior housing market is growing, with an increasing number of prospective residents planning for the future and investors looking to secure a piece of the pie in the world’s largest economy. And demand for senior housing might boom in just one generation, thanks to shifting perceptions among one particular group: China’s young millionaire class.

A timely combination of inadequate senior housing inventory, increasing life expectancy, demographic shifts and the effects of China’s one-child policy have contributed to the ongoing buzz around the topic. But it’s recent data about young, wealthy Chinese citizens who have demonstrated high interest in relocating to a retirement community when they age that had led to the latest twist in this conversation.

And while U.S. senior housing companies face significant barriers to entering the Chinese market, some signs suggest that opportunities might eventually open up. As the country’s senior housing landscape changes, the Chinese government is looking to the United States for ideas and guidance, having recently sent a delegation that met with a Chicago-based finance provider to the industry.

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An Industry Ripe for Change

China currently has around 40,000 “senior homes,” which are similar to skilled nursing
facilities in the United States. These facilities, although they provide beds for more than 4 million elderly Chinese citizens, are largely thought of as substandard, or places where children move their parents only when they are unwilling or unable to care for them, according to Law View Partners’ China Senior Housing and Healthcare Newsletter “Finding the Right Partner—and Hoping for the Best.” Law View Partners is a Shanghai-based boutique law firm specialized in helping foreign investors doing business in China.

“The need for housing alternatives that provide a far more dignified and enjoyable way of life for seniors is obvious and compelling – both to replace many, or most, of these existing, outmoded and unacceptable facilities and to increase the overall number of beds for China’s growing elderly population,” the newsletter states.

Additionally, China’s one-child policy has added to the conversation around the state of senior housing in China, the newsletter says. Simply put, the policy has resulted in fewer children to look after aging parents and grandparents.

Where Chinese elderly are choosing to live is also changing, according to Jeffrey Davis, chairman of Chicago-based Cambridge Realty Capital. The organization is one of the leading assisted living, nursing home, and healthcare debt and equity capital providers in the United States.

“The children aren’t living near their parents anymore,” Davis told Senior Housing News. He explained that China has experienced a population migration from rural to urban areas over the past two decades.

Starting Young

One subgroup of Chinese residents in particular has shown a noteworthy interest in senior housing.

Specifically, 70% of China’s millionaires are interested in joining a high-end retirement community in the future, and 45% believe they will need these communities, according a report from Taikang Life and Hurun Report.

The report involved responses from 1,119 high net worth individuals (HNWIs) from 35 regions in China. The researchers also performed 40 one-on-one interviews with HNWIs in the first-tier Chinese cities of Shanghai, Beijing, Shenzhen and Guangzhou.

These prospective senior housing residents—Chinese HNWIs—are a big, and growing, group.

A total of 1.21 million mainland Chinese had a personal wealth of more than 10 million yuan (about $1.58 million) as of this May, the report said. That number had grown by 120,000 people over the previous year. Meanwhile, the number of mainland Chinese who have more than 100 million yuan (about $15.78 million) has increased by 16%, totaling 78,000 people.

These prospective senior housing residents are also young. Chinese residents who have 10 million yuan are just 40 years old on average, and the average age of mainland Chinese worth 100 million yuan is 44 years, the report said.

The report revealed Chinese men are more interested than women and youth in joining retirement communities, and the professional healthcare expertise of these retirement communities, including nurses and healthcare facilities, is the main attraction for HNWIs.

Additionally, friends are more in demand than children for spouses after retirement, the report found. HNWIs no longer consider the busy heart of downtown the ideal retirement spot; instead, they are seeking residential districts with impeccable facilities, and suburban housing with nearby natural environments.

Looking to the States

With the senior housing market in China on the cusp of change, the Chinese government is hoping to learn from the industry in the United States.

A 22-member delegation of officials from the General Office of the State Council of the People’s Republic of China recently traveled to the U.S. to meet with senior housing and health care funding experts.

The delegation met with Cambridge Realty Capital’s Jeff Davis, who explained to them the similarities and differences between senior housing properties and commercial real estate in the United States.

“They seemed most interested in our government’s ways of financing senior housing,” Davis told SHN. “Their interest revolves around the major demand for senior housing and how it’s going to be fulfilled.”

There’s not a true third-party payer system in China, Davis said, basing the assertion on his research and conversations.

Davis told SHN that “there’s sort of an unquantifiable senior population in China,” and no one really knows how they’re going to be taken care of.

Despite this, Davis expressed his doubts about U.S. companies entering the Chinese senior housing market.

“There’s no question about the demand, but doing business there, and how it’s going to get done, is really the challenge,” Davis said, adding that there are “so many challenges from an entitlement point of view.”

Yet despite these obstacles, there are reasons to believe that the Chinese senior housing industry may end up looking familiar, in terms of how government programs can support and drive development. At least, that’s based on the observed interests of the Chinese delegation.

Davis said the delegation was particularly interested in learning about the various kinds of government financing programs available to senior care business owners in the United States, such as Fannie Mae, Freddie Mac and HUD.

The delegation was “incredibly intrigued with our methodology of doing things,” Davis said.

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