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REAL ESTATE: Senior Housing in China: A Market in the Making
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altIt is often claimen that China is at risk of 'getting old before it gets rich.' According to the World Bank, China’s ageing population (the number of people aged over 60) currently stands at 178 million – around one in seven of the population. This figure is set to double to 340 million by 2030. China’s ageing demographic profile and declining working population presents the country with significant challenges related to the care of its senior citizens. Although the deeply ingrained 'Xiao-Dao' mentality means that most Chinese families take full responsibility for the care of their elderly parents or relatives, often living with them under the same roof, the One Child Policy coupled with improved life expectancy is inverting the traditional population pyramid, making it difficult for the younger generation to adequately support their parents and grandparents.  
The Central Government recently began to take steps to address the challenges posed by the country’s changing demographic profile. Authorities have formulated a series of measures to support the development of the senior housing sector, which is set to double in size over the next five years. The private sector is attuned to these emerging opportunities, with numerous domestic and foreign developers, investors and service providers beginning to assess and enter the market. Market participants will face numerous challenges as they attempt to transform the Chinese senior housing market from “grey to gold”. Indeed, attempts to implement a sustainable business model for a high quality profit-oriented senior housing project have so far been unsuccessful. This viewpoint will provide an overview of current market conditions in the senior housing sector in China and identify, as well as evaluate, potential opportunities going forward. 

China's Ageing Demographic Profile


Underpinning the rising demand for senior housing in China is the country’s ageing demographic profile. According to United Nations’ definitions, China became an “ageing society” in 1998 when the proportion of its elderly population reached 10% of the total population. The World Bank anticipates that the country’s elderly population will almost double from the 2011 level to 340 million by 2030. The accelerated rate of ageing currently being witnessed in China is due to a combination of several factors. As the country modernises and living standards improve, life expectancy has soared and is projected to continue doing so over the next few decades, from 75 years in 2010 to almost 80 years by 2050. At the current rate of ageing, the proportion of China’s population that is elderly will surpass that of numerous developed economies, including Australia, Japan and United States, by 2030. At the same time, fertility rates over the past 30 years have plummeted due to the implementation of the One Child Policy beginning in 1979. The country’s birth rate fell from 17.8 per 1,000 people in 1979 to just 11.9 per 1,000 people in 2010. The two baby booms China experienced after the civil war which ended in 1949 have also contributed towards the country’s changing demographics.
The first generation baby boomers, born during the 1950s and 1960s, are now reaching the age of 60 and are becoming grandparents, whilst the second group of baby boomers, born in the 1980s, are becoming the parents of the country’s single-child policy third generation. 
The so-called '4-2-1' family structure (four grandparents, two parents and one child) is becoming more apparent in China in what is a complete reversal of the traditional population pyramid. This trend raises the obvious question as to how a young couple from two single-child families can be expected to provide for potentially as many as twelve aged family members (four parents and eight grandparents). More significantly, the coming years will see China’s shrinking working population having to support the country’s rapidly growing elderly population. 
Developing a senior housing sector, particularly a privately-run one, requires senior citizens to be able to finance the bulk of their living costs. Despite China enjoying rapid economic growth in recent years, its wealth level remains well behind that of developed economies. As of 2010, the United States’ per capita GDP was ten times greater than China’s. Although the gap in income levels is expected to steadily decrease in the years ahead, China’s GDP per capita is anticipated to be just 50% of the United States in 2030, reflecting the significant challenges in developing and paying for senior care in China.

altSenior Housing Institutions in China

The senior care industry in China is still at a very early stage of development. According to the Ministry of Civil Affairs, there were around 100,000 senior housing institutions in China at the end of 2010, providing a total of 3.5 million beds. This translates to just 19.7 beds per 1,000 elderly, or 1.97% of the population aged 60 and above, compared to a figure of around 5% to 7% in the United States, Australia and Japan. Public senior care facilities in China are generally at full occupancy because of low cost and the limited number of beds available. It can take months or even years to secure a bed in such an institution. As the country continues to get older and more people reach the age of 60, demand will increase further. These trends have resulted in the Chinese government formulating a long term plan to foster the development of the sector. Targets include: 
• Increasing the coverage of senior care institutions to 3% of the elderly population under the so-called '9073' scheme. Home care will account for 90% of the aged population and community care will account for 7%. 
• Increasing the supply of institutional retirement homes from 3.5 million beds as of the end of 2010, to 6 million beds by the end of 2015. 
The rate of ageing and the supply of senior living facilities significantly varies across the nation. Provinces on the Eastern and Northern coast, and cities in the west of the country, such as Sichuan and Chongqing, are ageing more rapidly than elsewhere. Amongst the provinces with above-average GDP per capita, Guangdong, Shandong, Fujian and East China lack institutional senior care facilities relative to their steadily ageing population; making them attractive locations for potential investment. Beijing, Shanghai and Tianjin have all reached the 3% target for institutional senior care but there is room for additional investment in high-end senior care facilities in these locations -  given their relative affluence and maturity. This analysis does not take into consideration the number of elderly people who may opt to retire outside of the cities where they currently reside. Some observers, noting the trend for seniors in the United States to retire to locations with an attractive climate such as Florida, believe that Southern China will emerge as a preferred location for retirees. However, there are significant cultural, ethnic and language differences within China which may  make it impractical for the elderly to relocate from other areas of the country. To date only Hong Kong has seen significant numbers of its senior citizens move away from the city to spend their retirement years elsewhere - usually in Guangdong.
altGovernment agencies are the largest operators in the market at present but recent years have seen increased participation from the private sector. Senior care institutions can be broadly classified into publicly and privately run facilities, as detailed below: 
• Public institutions – The majority of public institutions are nursing homes and social welfare homes. These are fully funded by government bodies such as the Ministry of Civil Affairs and various Agricultural Cooperatives. Charges to residents are relatively low and institutions provide collective accommodation only. Most provide services to seniors who are capable of taking care of themselves independently or require only minimal assistance for their daily living. 
• Private institutions – These institutions include nursing homes, senior apartments and Continuing Care Retirement Communities (CCRCs). Private nursing homes provide skilled nursing care for fully or partially disabled residents and consist of collective or dormitory style accommodation. Senior apartments and CCRCs usually provide high quality living facilities with healthcare support to affluent seniors. There is a huge range of institutions claiming to provide homes for seniors but only a few genuine projects are currently operating in China. Most only have minor differences to general housing developments. Although several schemes bill themselves as CCRCs with added elderly care services, most are in fact a combination of independent and assisted living facilities.
To encourage greater private sector participation in the senior care market in China, authorities have pledged to provide various incentives to support the development of new retirement homes and institutions. Two major types of subsidies have been announced thus far: 
• (1) The publicly-built privately-run model (公辦民營), under which the government provides land sites at below-market prices or with a one-off subsidy for construction costs - as well as providing monthly ongoing subsidies for residents. 
• (2) The privately-run publicly-supported model (民辦公助) under which the government provides subsidies for existing private institutions targeting lower income groups which are making losses. 
To date only a few pilot schemes have been launched in a few major cities, such as Beijing, and the implementation process across the country appears to be quite slow. The Central Government has placed a strong emphasis on encouraging the development of retirement institutions in areas of Western China such as Chongqing and Sichuan, and has also pledged to offer subsidies of no less than 70% of the total development cost. However, this incentive policy is still on the drawing board and the timetable for implementation has yet to be released. 

NB: this article is an excerpt from CBRE Research Viewpoint. Original contributors include Frank Chen, Ada Choi and William Cheung.
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