Aging China Draws Bets on Senior Housing

Aging China Draws Bets on Senior Housing

Global Property Firms Partnering With Chinese Developers

ESTHER FUNG

Nov. 5, 2013 7:17 p.m. ET

SHANGHAI—China has long doted on its elders. Now they are getting attention from another group: foreign investors. A number of global property firms are joining domestic developers in banking on a boom in elderly housing as China’s population ages. Merrill Gardens Related, a joint venture between real-estate developer Related Cos. and senior-housing operator Merrill Gardens of the U.S., is working with local developers to build facilities for the elderly in Shanghai, Harbin and Suzhou. The venture doesn’t have equity stakes in the projects but it plans to acquire majority stakes in several next year.In August, Beijing-based property developer Sino Ocean Land and Seattle-based real-estate firm Columbia Pacific jointly opened Senior Living L’Amore-Kaijian, a 110-bed facility in Beijing’s Yizhuang district. Through another local developer, Columbia Pacific’s Cascade health-care unit last year opened a facility in Shanghai.

“China’s population is aging very quickly, so there is going to be a huge market and lots of opportunities for investors and operators,” said Serena Xie, who runs that Shanghai facility, Shanghai Kaijian Huazhan Senior Care Service.

New York-based asset manager Fortress Investment Group, FIG -1.44% with conglomerate Fosun International, formed a 50-50 joint venture called Shanghai Starcastle Senior Living Services in 2012, and in May this year opened a facility in Baoshan district north of the city. The facility currently holds 60 seniors and its operators say they plan to learn from a gradual rollout. When all floors are completed, the facility will hold 171 independent-living units and 47 assisted-living units. The company didn’t disclose financial terms.

Huang Yiyi, a resident at Starcastle, pays slightly more than 20,000 yuan (about $3,300) a month for the 130-square-meter unit she shares with her husband. “It’s a bit pricey, but I appreciate the transparent billing process here,” says Ms. Huang, 67 years old. “I’ve seen other facilities where the billing is murkier with lots of hidden costs.”

China had 121 million people aged 65 years old and above last year, or around 9.1% of the population. In 2020, that number is forecast to reach 171 million, or 12.4% of the population, according to data from the Economist Intelligence Unit and Monitor Deloitte Analysis. By comparison, there were 42.4 million seniors in the U.S. in 2012, and 30.1 million in Japan.

China’s leaders have pushed to develop elderly services. China’s State Council, or cabinet, has waived the business tax on maintenance at facilities for the elderly and lowered taxes for some not-for-profit senior homes. It also said it would expand the types of collateral that could be used to get bank loans to help expand services for the elderly.

Still, senior housing in China isn’t a sure bet. Industry participants say high-end facilities—the most profitable—won’t appeal to Chinese families unaccustomed to spending heavily on elder care. “Right now, the old people aren’t rich, and the rich aren’t old yet,” says Sun Hongbin, chairman of Tianjin-based property developer Sunac Holdings, which has studied opportunities in the senior-living market but hasn’t announced plans to launch such a facility.

“Senior living is more or less a low-margin business. Just because there’s a demographic opportunity, it doesn’t mean it’s an economic opportunity,” says Bromme Hampton Cole, president of Hampton Hoerter China, a health-care and senior-living consulting firm. The rollout of pricey assisted-living centers is “ahead of its time,” he adds.

Executives say demand will come. “People who are coming to us need services. You can’t buy community, friends or someone to have dinner with,” says Lilly Ho Donohue, chief executive officer of Starcastle Senior Living Services.

Merrill Gardens Related says it is keeping local preferences in mind as it explores the market. “People [are] particularly attracted to projects in which seniors could live close to their family and friends,” says Cole Wright, co-managing director of the venture.

Merrill Gardens Related focuses on senior housing surrounded by residential property.

Its Shanghai project will house an 11-story, 112-unit senior-living facility within a larger residential complex. The venture estimates it will open the facility in the second quarter next year, and is optimistic about its prospects, though it has yet to sign on any customers. The facility will include a restaurant, hair salon, game rooms, a theater, a medical clinic and rehabilitation room.