Elderly care market favored by various capitals

Luo Wenbo, a researcher with Zhongtai Securities, firmly states that “as the generation born during the baby boom, which is also rich, grows old, China’s elderly care industry, especially the high-end elderly care industry, will embrace explosive growth similar to what the real estate market has experienced in the past decade” in a research report sent to institutions.

“Rich people getting old” brings a market of several trillions yuan

Data from the China National Committee on Aging (CNCA) shows that the consumption of China’s aged people will reach 3.3 trillion yuan by 2020, 8.6 trillion yuan by 2030 and 17.5 trillion yuan by 2040.

The industry believes that China’s elderly care industry, especially the high-end elderly care industry, will embrace explosive growth similar to what the real estate market has experienced in the past decade. Huge potential elderly care industry market also attracts various domestic and overseas capital.

Journalist learns through statistics that nearly all middle- and large-scale insurance companies are involved in the elderly care industry. Insurance enterprises, including China Life Insurance Company Limited (601628.SH; 02628.HK), The People’s Insurance Company (Group) of China Limited, Ping An Insurance (Group) Company of China, Ltd. (601318.SH; 02318.HK), New China Life Insurance Company Ltd. (601336.SH; 01366.HK), China Taiping Insurance Group Ltd., Unionlife Insurance Company, Ltd., Sunshine Insurance Group and Taikanglife Insurance Co., Ltd., have all established relevant branches and started to develop the business around the country.

Why various capitals are all so optimistic about the elderly care market? The policy benefits must be credited. The executive meeting of the State Council decided to advance the combination of medical health and elderly care service on Nov. 11 to better guarantee that the aged people can get medical service and can be looked after properly. Earlier this year, the Ministry of Civil Affairs and together with ten ministries and commissions jointly issued the Opinions on the Implementation of Encouraging Private Capital in Participating in the Elderly Care Service Industry, providing policy benefits to private capitals to be involved in the industry.

“This generation has the most people, and benefits from both the reform and opening-up policy as well as the golden ten years of the real estate market. As these high net worth individuals grow old, their consumption will be totally different from current status, bringing huge dividends to the elderly care industry.” Luo Wenbo indicated during his exclusive interview by the journalist that the core reason behind the explosive growth of the elderly care industry during the “thirteenth five-year” plan period lies in that “the rich is getting old”.

How to divide the “super cake”?

If the elderly care market is compared to a “super cake”, the insurance capital, real estate enterprises, listed companies and various private capitals all covet this grand banquet. There is much to explore about how to divide and digest the cake.

Taikanglife Insurance, who has entered the eldercare community market, seems to be planning something big cross the country. Currently it has seven eldercare communities under construction in Beijing, Shanghai, Guangzhou, Wuhan, Chengdu, Nanjing and Suzhou, which will be oriented to the nationwide market by 2018.

Taikang’s eldercare community is only a tip of the iceberg of the insurance funds’ involvement in the elderly care market. Reporters find through investigation that insurance companies have expanded their presence in the medical care and health sector in recent years. For instance, China Life proposed the development strategy of “major assets management, great health great health care”. Ping An Insurance plans to open 10,000 clinics in next ten years.

In fact, apart from the above-mentioned insurance funds who wish to get a bite of the trillions of yuan elderly care market, trust funds, venture capital, private equity, property developer, listed companies, and private capital from Shanxi, Jiangshu and Zhejiang provinces are also coveting the market, the reporter noticed.

Wang Xiaolong, general manager of Beijing Trust, disclosed that the company was renovating eldercare communities in Huairong District, Beijing according to local conditions, and had developed many land trust projects related to eldercare communities in Beijing, Sichuan Province and Jiangsu Province.

“After my retirement, I’d like to open a nursing home in Shanghai,” a real estate baron said few years ago when elderly care was not much seen in China. But now it is nothing new for real estate companies developing property for elderly care. A number of top real estate companies, including China Vanke Co., Ltd. (000002.SZ; 02202.HK), Poly Real Estate (600048.SH) and Gemdale Group, have aimed at the real estate for elderly care.

Insiders in the industry believe that listed real estate companies’ transformation to real estate for elderly care is their only choice as the traditional commercial houses are in surplus. With the coming of aging society, the elderly care property is expected to multiple in the following ten years, and will become a new and core engine for real estate companies’ business growth.

How to digest the market?

Although insurance funds, trusts, real estate companies and other capitals are pleased by the potential huge market in the elderly care industry, yet it is not easy to digest it as the industry is still facing problems, such as lack of professional talents and unclear profiting model.

“It is unpractical and impossible to count on the extravagant profits in the elderly care community.” Liu Tingjun, vice president and CEO of Taikanglife made the remark straightforward when speaking of the return on investment (ROI).

In the opinion of insiders, the ROI period of elderly care community in some developed countries is five to seven years or even longer. But in China, most businessmen merely regard the development of elderly care real estate as a marketing gimmick. What they really aim at is selling their properties.

Various investors think this super industry is of great potential, which has a huge population, a market size of one trillion yuan and is at an early stage. But why is it regarded as a “hot potato” by the pioneers setting foot in it? Maybe it is closely related with the pharmaceutical industry.

Wu Danxing, head of Health Industry College of Beijing Geely University, indicated that China’s elderly care industry is facing three bottlenecks now. First of all, the entry and exit system of investment is not known; so the investors just wait and see. If the financial market does not open, no capitals are willing to participate in it. Secondly, many enterprises engaged in elderly healthcare suffer losses due to lacking a matured model to gain profits. Capital injection is restrained by policy and mechanism. The third problem is about talents. It must be professionals to be specialized in elderly care and health business, but it is very difficult to employ the doctors from public hospitals under the existing system.

Besides the problems of exist system, profitability model and talents vacancy, it is noteworthy that capitals participating in elderly care community is also an all-new attempt of real estate industry, elderly care industry, health, medical treatment and other relevant industries integrating together, which will see further improvement with policy support, management philosophy, business model and supervision.  

However, the reality is that the state has launched a series of relevant policies, but some local regions lack corresponding policies concerning land supply, capital subsidy and tax reduction and exemption, which finally makes it difficult to implement the policies. It results in high costs of commercial elderly care service and is unfavorable to improve the competitiveness.

The elderly care community of developed countries from Europe and America is also a complex industry involving several industrial chains including aging education and healthcare, as well as building hardware facilities. This is because the core competitiveness of elderly care community is not the ability in development and investment but the service and management ability. It is beneficial for China’s elderly care industry to imitate the development path of the developed countries.