Concrete Analysis | Hong Kong’s wealthy ‘silver seniors’ create gap in market for high-end elderly homes

You probably know that Hong Kong’s population is ageing. But are you aware of the true scale of the phenomenon? According to the Census and Statistics Department, Hong Kong’s elderly population will double from 1.16 million to 2.37 million between 2016 and 2036, when one in three people in Hong Kong will be 65 or older. What’s more, many of them are already wealthy. A 2018 Citibank survey revealed that over 511,000 people in Hong Kong have net assets of more than HK$10 million (US$1.3 million). Their average age was 58. Combine these two factors, and you can expect a market shortage in high quality elderly homes. There were an estimated 42,526 homes for the elderly in Hong Kong at the end of 2019, according to the Social and Welfare Department. Yet, the market shows that less than 500 of these are high-end types. The Hong Kong home for the elderly where human touch makes all the difference for residents Traditionally, elderly homes occupy the bottom storeys of mixed-use buildings, and are basic in their layout, design and furnishings, with limited additional services. However, a senior-citizen housing scheme with two purpose-built projects, Jolly Place in Tseung Kwan O and Cheerful Court in Ngau Tau Kok, inspired what future high-end elderly homes can be. These two developments, launched in 2003 and 2004 respectively by the Hong Kong Housing Society, introduced new features such as double swing doors, non-slip tiles, heater lamps and so on. Residents enjoy access to clubhouses, multipurpose halls and rehabilitation centres, as well as nurses, social workers, physiotherapists and occupational therapists. This fresh approach gave senior citizens one-stop access to services that substantially improved their quality of life. In recent years, private market participants have also stepped in to offer high-end elderly homes, advancing further innovations such as wireless watches for indoor surveillance, facial recognition warning systems and mobile apps, alongside on-site professional teams. The big picture on health care for the elderly that Hong Kong is missing – it’s quality of life that matters, not how long people live High-end elderly homes offer improved space and privacy, with an average gross floor area (GFA) of about 300 to 500 sq ft (including the shared area). The elderly enjoy attractive facilities such as cinemas, libraries, barbershops and reading corners, allowing them to remain socially active. Fees for traditional elderly homes range from HK$8,000 to HK$14,000 per place per month, excluding extra services. By contrast, high-end service providers can charge HK$22,000 to HK$50,000, a premium of 180 to 250 per cent. Developing a new home for the elderly requires sizeable floor space of at least 5,000-6,000 sq ft GFA, with larger developments extending up to 30,000 sq ft. Faced with high rental costs, specialist operators are now cooperating with property investors to either acquire buildings en bloc and convert them into comprehensive home for the elderly centres, or to purchase land for development. Hong Kong will need 48 new elderly care homes every year unless demand is cut now, expert warns While this may involve the headache of planning applications and lease modifications, it can also allow for more flexible building design to cater for different operational requirements. Most importantly, costs can be easily controlled. The acquisition cost for a property suitable for a home for the elderly is about HK$8,500 to HK$12,000 per sq ft in GFA. The potential rental rate spans from around HK$25 to HK$38 per sq ft, depending on location, building age and quality. This means that the yield can be as high as 3.5 to 3.8 per cent. Retail property rental and capital values in Hong Kong have dropped by about 32 per cent and 34 per cent respectively since July last year, according to JLL’s index, due to the US-China trade war, social unrest and the coronavirus outbreak. However, the impact has been barely felt in the home for the elderly sector, given the relative stability of its core business model. For example, market intelligence indicates that a unit in Po Tin Shopping Centre, originally leased to a restaurant, is now leased to an home for the elderly at a new rental rate of about HK$30 per sq ft in GFA, representing a 42 per cent increase. Clearly, there are attractive opportunities in high-end elderly homes. However, barriers remain for market entrants. Success requires more than the “hardware” of novel designs and facilities. The most critical element is the “software” of skilled and experienced professionals, which is why the sector’s pioneers have strong teams running daily operations, management and cost control. The limited new supply of large floor space is also a constraint to growth. As such, I would recommend that the Government include development clauses for providing floor space for private elderly homes in the Conditions of Sale of upcoming land sales. With more wealthy “silver seniors” in Hong Kong, we expect more high-end elderly homes to come to market, and the quality of services to be enhanced. Eddie Kwok is the senior director of valuation advisory services at JLL in Hong Kong. Sign up now and get a 10% discount (original price US$400) off the China AI Report 2020 by SCMP Research. Learn about the AI ambitions of Alibaba, Baidu & JD.com through our in-depth case studies, and explore new applications of AI across industries. 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.css-1m2rp1p{color:#34b8b5;}Concrete Analysis | Hong Kong’s wealthy ‘silver seniors’ create gap in market for high-end elderly homes

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Shortage of high-end elderly homes looms as wealth grows with ageing population Hong Kong could consider stipulating space for private elderly homes as condition in future land sales

Concrete Analysis | Hong Kong’s wealthy ‘silver seniors’ create gap in market for high-end elderly homes

Shortage of high-end elderly homes looms as wealth grows with ageing population

Hong Kong could consider stipulating space for private elderly homes as condition in future land sales