Australia’s Lendlease has just introduced its first premium senior living development project in China. ‘Ardor Gardens’ will sit on a plot in Shanghai acquired for 50 years by the Australian developer-operator. It is expected to worth approximately 1.9 billion yuan ($276 million; €246 million) when completed.
Lendlease is not alone in its foray into the sector. Hong Kong’s CITIC Capital is expected to launch a $200 million senior housing fund later this year looking at developed assets in China’s first and second-tier cities in China. The majority of the foreign investors interested in this fledgling marketplace are mainly scouting in its higher end – where they are most confident their expertise and brands can make a difference.
In terms of returns from senior living properties in China, foreign investors engaging with the asset class are typically seeking IRRs from 12 to 20 percent, according to a JLL capital market source. These include CITIC which is understood to be looking for 13 to 15 percent IRR.
Of course, the development of senior living assets in China is still at early stages; investors must be taking into account their capital has to be patient to achieve the expected return. CITIC is understood to be taking a long-term view but the lifespan of the fund is unclear. And for Lendlease, it aspires to build 5,000 units around Shanghai and the Greater Shanghai area as it sees long term opportunities with the economic development in the region.
The 1,000-foot reason to buy into accommodation for China’s elderly is obvious. There should be opportunities to house the country’s ageing population. After four decades of a one-child policy, citizens aged 60 and up are expected to reach 487 million by 2050, according to China’s National Health Commission. And with a limited government budget and growing need for senior care services, the state has, predictably, encouraged foreign investors to participate in the sector. As early as in 2015, China’s Catalogue for the Guidance of Foreign Investment Industries listed elderly care institutions as an “encouraged” sector.
Less obvious is that investment from foreign investors remains limited. According to property transactions research firm Real Capital Analytics, it has not seen any deals in this sector over the past couple of years in China.
Limited by culture
Talk to real estate professionals in Asia and you will hear how senior living in China is not a sector widely tested by investors largely because demand has traditionally been limited by cultural factors. The traditional concept of ‘yang er fang lao’ – to bring up children for the purpose of being looked after in old age, is deeply engrained in society, they say.
In addition, the sector has a considerable domestic workforce, which charges a lower price than the premiums associated with senior living facilities. According to data provided by broker JLL, high-end senior housing charges from 18,000 yuan to 30,000 yuan monthly while at-home carers traditionally charge from 7,000 yuan to 10,000 yuan. Lendlease, meanwhile, is opting for a membership model for its Ardor Gardens where charges of A$400,000 ($282,000; €251,000) apply for a one-bedroom unit. Tenants there will pay additional monthly service fees, depending on the level of service.
Undeniably, the graying population and growing middle class in China is putting greater pressure on the quality and quantity of the country’s senior housing. Whether international, institutional money is able to take advantage will depend on government and cultural tailwinds.
Near term, the first litmus test will be the success of the as-yet limited scale initiatives from the likes of Lend Lease and CITIC Capital. The second test will be the sector’s scalability to make it an institutional mainstay. Then international money will know whether the ageing Chinese are a demographic it can legitimately serve, or whether the strategy remains one for the theorists.