Close Close

Life Health > Health Insurance

China developers chase next gold mine with health care blitz

Your article was successfully shared with the contacts you provided.

(Bloomberg) — Chinese real estate developers have begun chasing what they see as the country’s next big business opportunity — the health care market.

As the world’s second-largest economy expands at its slowest pace since 1990 and rising land costs curb profit margins, many debt-ridden developers are tapping health care as a lucrative alternative. At least 15 of China’s 133 listed developers have diversified into areas such as hospitals, senior homes, and even plastic-surgery facilities, company statements show.

See also: Bankers lured by broken bones lead hospital charge in China

Most companies are making a gradual transformation, while some have retreated completely from property development. Last month, a former industrial developer changed its name to Winsan Shanghai Medical Science and Technology Co. after investing in a firm that supplies computer systems to small hospitals, as well as a Singapore-based wearable device maker.

Winsan has said it was pushed by the market environment. “The first stage of our transformation has been successful and we have basically exited from real estate,” Chairman Qian Rengao, said in a television interview in May posted on Winsan’s website. This company didn’t respond to requests for an interview.

Cut red tape

China’s developers have been struggling with an inventory of unsold homes. Despite signs of recovery, growth in home sales has remained flat compared with 20 percent annual expansion for more than a decade since 1998, said Liu Yuan, a research director at Centaline Group in Shanghai. “Therefore, developers need to make new attempts to maintain profit growth.”

In contrast, demand for health care services is expanding, and public hospitals are struggling to keep up. The government aims to expand its health services industry to more than eight trillion yuan ($1.3 trillion) by 2020, and recently issued policies to cut red tape and boost financing for private investment in hospitals.

See also: Foreign drugmakers face pressure to lower prices in China

China’s swelling middle class, combined with its aging population, make health services an attractive sector with strong demand prospects, said Alexander Ng, an associate principal at McKinsey & Co.

Last week, China’s state council issued policies to promote better data sharing between hospitals and the development of online medical consultation systems for rural areas.

Health services

Lvjing Holding Co., a developer based in southern China, plans on raising up to 20 billion yuan in a private placement to develop health care services, including hospitals and to venture into “Internet health care,” according to a May statement.

Last month it announced the sale of its main property development subsidiary because it plans to “exit from the real-estate market.” It declined an interview request.

International hospital operators may also see opportunities in the China market. Guangzhou-based Evergrande Group and Massachusetts-based Brigham and Women’s Hospital visited China’s southern Hainan province last month to explore a potential site for a hospital, Evergrande said in an e-mailed statement. Brigham and Women’s Hospital has no information to offer at this time, chief communication officer Erin McDonough said via e-mail.

In June, the real-estate giant’s health care arm, Evergrande Health Industry Group, opened a hospital in northern China with a South Korean firm. Services include plastic surgery, skin therapy and anti-aging management, it said in a statement.

In June, Evergrande Health opened an “Internet community hospital” in Guangzhou, where local and foreign experts provide online consultation and disease prevention services through its Internet platform, the company said in a statement on its website.

Internet companies

China’s health care services sector already has some high-profile investors, including drugmakers such as Shanghai Fosun Pharmaceutical Group Co., which builds hospitals across the country. Companies such as Baidu Inc. and Alibaba Group Holding Ltd. have also begun vying for dominance in mobile-health and online markets.

Developers often don’t have the capability to design hospitals and need to partner with hospital operators, Ng said. Another challenge is the scarcity of doctors for private investors with medical professionals largely tied to public hospitals, said Shi Lichen, manager at Beijing Dingchen Medical Consultancy, an advisory firm.

See also: AXA is selling annuities through ATMs in China

Property companies are also looking at a very different investment from the quick returns of selling apartments. Building a hospital from breaking ground to the opening can take five to seven years, according to Ng. And breaking even takes longer.

“It’s not a high-margin business — full stop,” said Ng. “The only thing you can guarantee is that if you’re a good-performing hospital, the certainty of you making a similar if not higher profit next year is very, very high.”

—With assistance from Emma Dong in Shanghai.


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.