Being the largest real estate market in the world, China will also become the largest real estate market for the old-aged in the world. However, from a holistic perspective, the elderly real estate industry in China is just getting off the ground and facing many issues. For example, the valid rigid demand is not balanced, the profit model is not clear, and the industry chain is not yet formed.  

Optimistic investors thronging into the market

In 2010, Vanke announced its development of “Vanke Xingfuhui” Project in Doudian Town of Fangshan District in Beijing, as a pilot real estate project for the old-aged and also for paving a path to the elderly housing market. Renting and leasing were the two models used for this project. Unlike Vanke, Greentown adopted the practice of “caring for the elderly before developing real property”. It set up its Greentown Yile Education & Investment Company and designed the first model of academy-based property for elderly care in China.

Poly Real Estate set foot in the real estate industry as early as in 2008. It has now planned for building 7 real estate projects for the old-aged in 6 cities including Beijing, Shanghai, Guangzhou, Chengdu, Sanya and Yangjiang. According to incomplete statistics, at present there are 80 real estate developers who have entered into the realm of real estate development for elderly care and involved in more than 100 such projects nationwide.

Under the background where the governments of different levels continuously issue a series of policies for encouraging and guiding social capitals to go into the silver industry in view of the more and more serious aging problem, not only the real estate developers are attracted by the huge potentials of the elderly consumer market, other investors are also thronging into the market. With the insurance companies and state-owned key enterprises as the representatives, “capital owners” are planning and deploying for seizing market shares and making great efforts to achieve breakthroughs in the real estate development for the old-aged, as it is an emerging business of promising future.

The state-owned key enterprises had a fast move, since they had no worry about funds and covered a wide scope of business. As early as in April 2013, Sinopec entered into an agreement with Pi County in Sichuan, whereby RMB 8 billion would be invested in providing more than 10,000 beds for elderly care according to plan, for the purpose of exploring a model for development of a silver industry park. In May 2013, Sinohydro also announced investment of RMB 8 billion in a partnership for developing real estate projects for elderly care in Bishan District of Chongqing.

Insurance enterprises have abundant funds and seek for long-term, stable profits. Development of real estate projects for the old-aged demands for a huge amount of funds and features a long return-on-investment period and stable income from investment. These characteristics perfectly fit with the needs of the insurance enterprises. China Silver Industry Development Report 2014 showed that at present 7 insurance enterprises including Taikang Life, China Life, Ping’an, New China Life Insurance, Union Life, Taiping Life and China Life Insurance, have engaged in the elderly real estate industry with a total investment of around RMB 100 billion.

At the same time, some internationally renowned elderly care service groups, real estate investment funds and other investors are also appealed by the huge market potentials and begin to enter into the elderly consumer market in China. For example, Aramark (U.S.), Sodexo (France) and Megafit (Hong Kong) have respectively contracted for the services and operations of Shanghai Cherish-Yearn, a leader in the industry of real estate for the elderly in China, such as domestic services, property management, catering services for the old-aged, rehabilitation and fitness services of the elderly, and the operations of the hospital for elderly.

Imbalanced rigid demand, unshaped industry chain

From the worldwide perspective, as the aging society is coming, the real estate industry for the elderly will gradually become a new part of the global real estate industry. It has been widely recognized that, China is the largest real estate market in the world, and it may also become the largest real estate market for the elderly in the world. “In fact, the basic conditions for the accelerated growth of the elderly real estate industry in China are already there, and as one of those important conditions, the demands are obviously increasing,” said to the journalist of Economic Daily by Li Jing, Associate Researcher and Director of the Aging Society and Culture Research Institute of China Research Center of Aging.

 “Although an early form of the real estate industry for old-aged is already seen in the market, a really mature profit model is yet to be discussed and explore,” said to the journalist of Economic Daily by Dong Pengtao, Research Assistant of the Aging Economy and Industry Research Institute of China Research Center of Aging. From a holistic perspective, the elderly real estate industry in China is just getting off the ground and facing many issues. For example, the valid rigid demand is not balanced, the profit model is not clear, and the industry chain is not yet formed. It is still in the wait-and-see stage where more investors are keeping keen eyes on the industry and gradually studying on and planning for deployment of their investment.

In terms of age, most of the people paying attention to the elderly real estate are old-aged, so the awareness of aging and the idea of “preparing for the old age earlier” is far from being formed in the whole society; in terms of region, the elderly real estate industry in the west China is lagged behind than that in the east China which is more developed; and, in terms of location, nearly all elderly real estate projects are located in cities and towns.

Dong Pengtao has the view that the imbalanced rigid demand on one hand restricts the industry development and on the other hand indicates the tremendous room for future growth of the industry, and the key is to mobilize the huge consumption needs, turn the potential needs into real needs, and further turn it into rigid demand.

As an emerging industry, the elderly real estate industry has a very long industry chain that covers many indispensable aspects, including capital operation, talent training, hardware construction and management operation. In China, the elderly real estate industry has just got off the ground. There is no basic standard or system, no professional management organization, and no specialized talent training and education system. A complete industry chain is far from being formed, but now in a broken condition.

Under such a circumstance, investors may put investment, development, operation and service “all on one shoulder”, or they may only deal with the hardware part and leave the software part such as management and service to international professional organizations. “The first approach is worth praise for the courage, but in fact there is no other choice, so they have to deal with the management and service part that they are not good at, and as a result, the work is not professional enough, the cost is high and the efficiency is low.” Li Jing opines that the relatively high charge for the low-level management and service further leads to the difficulties in sales of housing products and services for the elderly, affecting the sustained growth of the enterprise, and more importantly, failing to meet the needs of the elderly.    

Growing trend, growing supply

China has entered into an aging society. With its huge population, China will become the country with the greatest market potentials in the future global silver industry. According to estimation, during the period from 2014 to 2050, the potential consumption power of the elderly population in China will grow from around RMB 4 trillion to around RMB 106 trillion, and its percentage in GDP will grow from around 8% to around 33%.

The huge number and fast growth of elderly population in China serve as a precondition for the growth of the elderly real estate industry. Since 1999 when China stepped into the aging society, the aging population has been growing bigger and faster. In 2013, the population of elderly people aged above 60 exceeded 200 million; and by 2053, this population will reach its peak to around 487 million. At that time, 1 out of 3 persons will be an elderly person, and such a huge elderly population will in turn generate great potential consumption power.

As the economy continues to grow fast, the income level of the residents, and elderly residents in particular, also grows higher, which lays a foundation for the growth of the elderly real estate industry. Since 2005, the average basic pension for the retirees from the enterprises has been increased for 10 times, from RMB 713 in 2005 to over RMB 2000 in 2013. The Report to the Eighteenth National Congress of the Communist Party of China has pointed out that, by 2020 we should achieve the goal of doubling the 2010 per capita income for both urban and rural residents, and the income of the elderly will certainly grow by a large margin.

“The elderly people are changing their mindset of consumption, and those elderly people who were born after 1950’s are particularly willing to spend money for enjoying the fruits of economic and social development and pursuing high-quality life in their remaining years.” Dang Junwu, Associate Director of China Research Center of Aging stated that, as the middle-age are becoming the old-age, they will bring their current mindset of consumption into their old-age living and they will be apparently much more willing to spend than the elderly people today.

In addition, as the birth rate keeps declining and the family size keeps shrinking, the children will face huge pressure from caring the elderly and the rigid demand for elderly care will grow. The elderly real estate projects with both well-designed hardware facilities and good services for the elderly will be favored.

 “The demand and potential in the future elderly real estate industry is huge, and it will provide a new channel of investment to many investors.” In order to promote the rapid growth of the elderly real estate industry in China, Dang Junwu suggests turning potential needs into real needs, and he also suggests the following: it is necessary to strength operation management and service provision; it is necessary to speed up preparation and implementation of the development plan for enabling development in good orders; it is necessary to accelerate introduction of supporting policies for optimizing the environment for development; it is necessary to use efforts to develop an industry chain for reasonable division of work; it is necessary to build a diversified platform for investment and financing, so as to solve the difficulties in funding both the supply side and demand side; and, it is necessary to make real efforts in such aspects as construction of a common environment for residents, talent education and market supervision.