China’s aging population is among the most urgent problems plaguing policymakers in Beijing. For property developers, however, it is an enormous opportunity for those who see potential in bringing nursing homes to China.
Nursing homes are not yet commonplace in China, since they are seen as incongruent with Confucian culture, which carries a strong familial obligation to take care of one’s parents in their old age. Today, there are over 190 million people over the age of 60 in China, a figure that will swiftly increase as a consequence of the 1979 One-Child Policy. In 2010, China had about eight workers for every retiree; by 2050, there will be only two, making it ever harder for children to care for their elders.
People in China often have strong negative stigmas about nursing homes, describing them as the “last resort” and “shameful.” For many Chinese, putting family members into a senior living facility is equivalent to abandonment. Senior living facilities in China today often corroborate that stigma. The prevailing stereotype of a senior living facility is a dingy, overcrowded home with subpar amenities and separated from the familial society. Indeed, well-managed nursing homes are hard to find in China.
Cultural adoption and staffing shortages are only two of the significant challenges as companies enter the market. The cultural stigma associated with nursing homes cannot be underestimated in planning a senior living facility. In many ways, Chinese seniors are no different from their peers in other countries in their reluctance to embrace nursing homes. They treasure their independence, want to spend time with their family, and fear the loss of their faculties.
Staffing is also an enormous obstacle in a country where nursing is viewed as a lower-class job. In 2010, with only 1.65 million nurses, China had less than 25% of the nurses necessary to meet demand across the country. China’s nurses earn less than the average annual wage, and are overworked within China’s overcrowded system. Turnover is a significant issue throughout the healthcare industry, as competitors offering a marginal payrise can draw nurses elsewhere. Nursing schools are not full four-year programs in China and companies incur major costs training nurses who leave quickly thereafter. This acutely affects the senior care industry, where consistent relationships are especially important to clients and their families. Additionally, foreign companies cannot import foreign nurses, since only Chinese nationals are allowed to practice nursing in China.
Chinese consumers are largely unaware that high-end nursing homes exist, so marketing and attracting initial clients to a senior care facility is extremely difficult. The cultural stigma makes mass marketing very difficult, so companies rely on word-of-mouth to bring in new customers. Existing high-end homes experience difficulty meeting occupancy. Some managers described customers’ confusion about whether or not these care facilities constituted family care; some prospective clients inquired about bringing severely disabled adult children into the assisted living section of a senior care facility, not understanding that the home was specifically designed for elder care. In more than one case, facilities admitted the adult child and amended their services to suit the clients’ needs. On site visits, a few residents had even brought healthy adult children to live with them in the facility. These inquiries suggest the average Chinese consumer does not quite understand senior living. It also illustrates the prevalent notion of familial ties, since customers have trouble differentiating between a senior care facility and all-encompassing care facility.
Developers are still deciphering how the Chinese market would prefer to pay for a high-end senior care facility. In interviews, company executives discussed all kinds of payment plans: month-to-month rent, upfront fees with following fees for certain services, bundled packages, repaying deposits after a certain number of years, and more. The initial fees are near essential to a home paying their fixed costs, but can deter potential clients who are not willing to commit so much upfront. Managers and clients alike cited the difficulty in building a payment plan that is both attractive to the Chinese consumer and financially feasible.
Access to real estate poses another problem for investors and developers, Chinese or foreign. Without government consent and financial support, it is extremely difficult to acquire land through China’s government-run land auction process. In the real estate market, senior living companies cannot hope to bid against residential and commercial property developers in land auctions; they can simply afford to pay more. The return on investment for senior living is so uncertain that senior living developers cannot promise as high a return as residential or commercial developers, and certainly not in as short a time frame. Senior living developers must either utilize government help to win the land auction at a discounted price or work with a residential or commercial developer to develop part of their property for a senior living project.
In Shanghai, Cherish-Yearn (Qinheyuan, 亲和源), stands out as a high-end senior care facility. The home prides itself on offering a true community experience, with dozens of activities available to its residents, whose ages range from the recently retired to much older. Cherish-Yearn offers residents the option of leaving Shanghai during the winter for their facility in Hainan, China’s tropical island province. For whatever else residents may want, each building has a resident representative who sits on a committee to discuss issues with management.
Cherish-Yearn’s residents are largely more independent from their families than the norm, which is likely among the reasons they chose to move there. Cherish-Yearn offers the three levels of care often offered by Western facilities: independent living, assisted living, and skilled nursing. Most of its residents come via word-of-mouth marketing. They are mostly Shanghainese, or Chinese who return from living abroad to retire in their homeland. Surprisingly, the management cited few clients whose children were involved in the decision to move there, and the vast majority of residents pay for the fees without their relatives’ help. Just over 500 residents have moved in since Cherish-Yearn’s opening in 2007, far fewer than the 800-person occupancy.
Establishing Cherish-Yearn required significant government support and capital investment. The government heavily subsidized Cherish-Yearn’s property in Pudong, which lies about fifteen miles west of Shanghai’s Pudong International Airport. It cost nearly $100 million to construct Cherish-Yearn’s fifteen buildings. Residents pay for a card to move in, and yearly fees after that. They can choose between an “A card” or “B card,” the former granting ownership of their apartment and the latter giving a fifteen-year lease. Cherish-Yearn then charges for basic services each year, offering other services on an add-on basis. For Card A, the price was RMB 500,000 when they opened, and has since risen to RMB 980,000.
American firms are eager to profit from this emerging industry. In April 2012, US Ambassador to China Gary Locke ‘72 led a trade mission seeking to draw attention to the potential for senior housing for American companies. The Chinese government has affirmed the importance of allowing foreign companies to bring their experience to the domestic marketplace, recently revising laws that allow wholly foreign-owned companies to operate in the healthcare sector. Pressure is simultaneously intensifying on local governments to take care of seniors in their principalities, giving them an incentive to help foreign-owned and Chinese companies alike to establish senior living facilities.
Most American operators who have signaled interest in the market are partnering with Chinese property developers through joint-venture agreements. Such agreements are popular because they make it easier to break down language, culture, and potential regulatory barriers. Many companies are working to establish senior care facilities, often starting in Shanghai. Daniel Baty’s Cascade Healthcare gained the first permit to operate a senior care facility in China, and its Shanghai facility opened in October 2012. Cascade invested $5 million to renovate a hotel into a 100-bed facility, where residents pay between RMB 12,000 and RMB 18,900 each month. Fortress Investment Group has also partnered with Fosun Capital Group, opening a facility called Starcastle in Shanghai in early 2013. Merrill Gardens, in conjunction with Related Real Estate, has partnered with a Shanghai property developer and plans to open a facility in January 2014.
Others are working to establish senior care services. Right-At Home is an American company that provides various levels of in-home care, from simple housework to “skilled nursing.” The Nebraska-based company opened operations in Beijing in 2011 after Chinese businesswoman Yao Li established its Chinese franchise. She left her position as CEO of Beijing Yinda Property Management, a commercial and residential property developer, to head up Right-At Home’s China operations. The well-known United Family Hospital chain added home visits for elderly patients to their product offerings earlier this year.
Image credit: Wikimedia Commons
This article appears in the November 2013 issue of China Hands.
One thought on “Old Money”