Why senior living assets are lucrative property investments in Hong Kong
Yields are expected to surpass residential and Grade A office returns with over 3% per annum.
Real estate investors would do well to take a closer look at the senior living sector as it proves to have significant money-making potential. Ageing populations are forcing countries around the world to scramble to provide sufficient accommodation. However, for a country such as Hong Kong, the scarcity of land is posing a significant supply challenge.
According to Colliers, despite the sector offering traditional Residential Care Homes for the Elderly (RCHE), they do not appeal to healthier, wealthier retirees. There is a market need to provide a product for residents that pursues a social, active, no-fuss lifestyle that includes community and medical support. This sector is doing well overseas with consistently robust yields, and it can do the same in Hong Kong.
Here's more from Colliers:
Investor appeal is buoyed by an acute supply deficit of senior living developments and the sector's long-term prospects. According to the government's population figures, residents older than 60 currently make up 20% of the city’s population, and the number of seniors aged 65 or older is projected to nearly double by 2036. Currently, Hong Kong has around 1,500 senior living units available, within only five developments, of which one will not be completed until around 2024. Current and future supply does not come anywhere near fulfilling the demand from middle-class to affluent seniors. This deficiency creates possibilities for investors, developers and operators.
“Like other assets, senior living assets suffer from a lack of supply. However, this sector has several competitive advantages over the traditional market: an ever-growing demand, an abundance of untapped potential, and a consistent and secure rental income,” said Hannah Jeong, Head of Valuation & Advisory Services of Colliers in Hong Kong.
“While investing in senior living is a highly attractive venture, this is a specialised sector that requires partnering with technical experts in the field of property acquisition, elderly care and design,” added Jeong.
Senior living to offer better yields than conventional investments
In more developed global markets, the senior living sector shows more appealing returns than the traditional residential market and even prime office space in certain regions. When comparing the sector’s performance against more mature markets, such as the US and Europe, we estimate senior living assets in Hong Kong have the potential to provide a yield of up to 3.25% per annum, outperforming upper estimates of residential and Grade A office assets of 2.4% and 2.6%, respectively.
Stella Ho, Senior Director of Valuation & Advisory Services of Colliers in Hong Kong, said: “While senior living is typically in its early years of development in Hong Kong, it presents well-informed investors the opportunity to gain a foothold before others. The market provides steady rental income and the option to convert the asset into residences as an exit strategy.”
How the government could facilitate the development of the senior living sector
As far back as 2003, the government attempted to encourage developers to provide traditional elderly homes in their new developments via the Premium Concession Scheme. There is no such scheme for senior living yet.
However, officials have shown flexibility in allowing non-performing hotels to convert to NGO-run temporary housing for vulnerable families to cope with the public housing shortage. There is optimism that when it comes to private senior living developments, the government will exercise such flexibility to tackle the lack of refurbished buildings for senior living use.
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