Senior Care—A Market in the Making

by Thomas Pellerin and Jiadi Yu, Principal Investment Officers, IFC 

A group of investors and operators active in markets for senior care discussed investment opportunities and operational challenges, while outlining some differences between markets.

Segment Overview

This is a nascent segment in emerging market healthcare. Investment is on the rise overall. As the developing world ages rapidly, social norms are evolving. The overall level of social acceptance of placing family members in some form of residential care is still relatively low. However, younger generations in certain regions are more amenable to considering professional solutions for their family members. Many middle-class families with two incomes now.

The market for residential retirement homes, both custom-built and retrofitted, is expanding, especially in Asia and Latin America. The state of development of the market varies greatly between regions—and between rural and urban areas. In Chile, for example, residential care for seniors is becoming more popular in the capital Santiago while in other parts of the country, the market remains in its infancy.

Niche markets are emerging such as ‘respite care’, where families place an elderly member in residential care for a short period while they take a vacation or similar. In Asia, another new niche market is seasonal elderly care, whereby seniors from colder, northern Asian climates such as Japan and South Korea move temporarily to warmer regions, notably in southeast Asia, to live for the winter months.

One feature of this segment is that it involves two ‘customers’: the patient to whom the care is delivered, and his or her children who often are also paying for the service. The children tend to drive market growth as they are responsible for the payment. This concept is particularly popular in countries with large diasporas, like Poland, whereby overseas children are keen to pay for the care of their parents as the latter start to lose their autonomy or mental faculties. In India, similarly, it is increasingly common for young people who have emigrated to developed countries and acquired wealth there to be willing to pay for home or residential care for their parents back in India.

The regulatory landscape can impact this market significantly. For instance, in Lebanon, legacy protections for long-term renters against rent increases are being phased out, a development that will likely spur demand for residential homes for seniors. In China, a commonly-deployed model involves the government owning the land and property of senior living facilities while private sector operators rent and operate them. China also directs public supports toward investors and providers through tax breaks or discounted lands for real estate developers who build homes for senior living.

There is considerable scope for private providers to partner with government, especially at local levels, to develop successful business models. The precise nature of public-private sector collaboration varies significantly between countries. For example, in Belgium, public subsidies are directed toward healthcare staff, while in the Netherlands, the government pays a lump sum to the families of elderly who have full freedom on how to spend it. One provider described a partnership with local governments in Turkey under which the authorities provided a fixed monthly sum per resident. It is advisable when operating under such a system to agree on a reimbursement rate that will allow the provider to make a profit without placing undue burden on the public payor.

Challenges and Solutions

While there are many growth opportunities and different options for care models, the segment presents a lot of challenges. The shortage of well-trained staff is perhaps the single largest bottleneck. Many operators take matters into their own hands by setting up training programs. A related challenge is with workers objecting to performing a variety of task types. For example, cleaners will only clean, nurses will only provide nursing care etc. This is problematic in an environment where a more multi-functional mindset is optimal. Another common problem is reluctance among staff to report health-related incidents, notably residents falling.

One provider noted that the families of residents, especially in developing countries, can have unrealistically high expectations of staff-to-resident ratios—they expect a lot of staff, whereas operators prefer less, more efficient staff, partly to make the business model more affordable. Tensions can also arise due to independent-living residents (supported by their families) not wishing to be mixed with assisted-living residents. For example, independent-living residents can object to a presence of healthcare workers during mealtimes. In the field of mental health, providers need to consider that residents who suffer from dementia will need specialized care.

To maintain residents’ wellness, one provider underscored the benefit of organizing social and physical activities as a way of staving off rapid deterioration in residents’ mental and physical faculties. In practice, residents tend to need some encouragement to participate in these activities.

Whatever service model senior care providers choose, it is essential that they demonstrate a high level of quality care. Equally essential, at least in the case of residential facility operators, is that they achieve a high occupancy rate given the high real estate costs involved with these types of businesses. In addition, given the absence of long-term care insurance or government subsidies in many developing countries, providers need to develop different business models than those commonly deployed in developed countries where social security systems cover the elderly.

In sum, this segment presents rich opportunities but also challenges that only investors with a solid understanding of senior care, healthcare, demographics, and cultural dynamics can rightfully take on.

Select Countries Population 65+ years (2020) Percentage of pop. 65+ years (2020)
Japan 35.7 million 28.2 = highest
USA 55.1 16.6
China 173.6 173.6
India 90.6 6.6
Brazil 20.4 9.5
Indonesia 15.7 5.8
Mexico 10.1 7.5
Pakistan 9.5 4.5
Vietnam 7.9 8.1
Turkey 7.4 8.8
Poland 7.0 18.6
Nigeria 5.7 2.7
Philippines 5.7 5.2
Argentina 5.3 11.6
Chile 2.3 12.2
Malaysia 2.3 7.0
Kenya 1.5 2.9

Source: United Nations Population Division, World Population Prospects 2017

Published in May 2019