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Hot Real Estate Investment: Retiree Pays $220,000 to Rent Apartment for 15 Years – Bloomberg

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Retiree William Tang recently decided to swap his life in downtown Shanghai for a luxury elder-care development in the city’s far west, paying $220,000 to rent a two-bedroom apartment for 15 years.

“It is more like a resort,” Tang said after viewing the Ardor Gardens showroom, which highlights amenities including an indoor swimming pool, yoga rooms, wine tastings and round-the-clock care.

For a growing number of Chinese and international investors, elder-care developments like Ardor Gardens are becoming irresistible bets. Money is pouring into the sector amid renewed attention on just how quickly China is aging.

Sydney-based property and infrastructure company Lendlease Corp Ltd., which put $280 million into Ardor Gardens, is among investors that see the policy environment becoming more favorable as the Chinese government tackles its demographic challenges.

“The market will likely be completely different 10 years from now,” said Lendlease’s China President Ding Hui. “If you wait for 10 years before starting to think of buying land, learning, training up a team and developing a business model, very likely you would have missed the opportunity.”

According to China’s latest population data, the number of residents aged 60 and above has risen 47% over the past decade to 260 million, more than 18% of its total population. By 2050, it is forecast to nearly double to almost 500 million.

Lendlease is in competition with established domestic players including blue-chip insurers, private-equity firms and property developers. Dozens of foreign investors have also piled in in recent years, including Singapore’s state-owned Temasek Holdings Pte, U.S. health-care investment firm Columbia Pacific Management and Fortress Investment Group.

More are looking to join the fray. Chinese investment giant Citic Capital is aiming to build a handful of elder-care projects with partners in major cities over the next few years, said the head of the firm’s real estate division Stanley Ching. New China Life Insurance Co. meanwhile just started selling a new 280,000 square meter (3 million square foot) elderly-care complex in a suburb of Beijing — roughly the size of 40 standard soccer fields.

Many of these companies have yet to make money from the senior-care business, but they’re betting that growing demand for such facilities and changing societal norms in China will deliver returns in the longer term.

Aging China Relies on ‘Young Old’ to Take Care of Oldest Seniors

On the policy side, the government is drafting detailed plans to strengthen the senior-care sector, with a focus on expanding basic and affordable services. These include increasing the number of beds at nursing homes, and putting resources into training much-needed professionals.

“China’s high-end senior care market has not entered the phase of high-speed growth, but it has certainly gotten started,” said Ye Liming, a director at the Shanghai Senior Service Industry Association.

Looking for a Bed

Elderly-care bed supply in China falls far short of demand

Source: Ministry of Civil Affairs, Qianzhan Industry Research Institute

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The country’s demographic trajectory is also upending deep-set traditions that have impeded the popularity of care homes. Though children in China have long been bound by the duty to care for their elderly parents, many families live far apart following years of labor migration and urbanization. The problem is exacerbated by the fact that many soon to enter retirement only have one child to rely on due to China’s one-child policy.

Despite these demographic shifts, industry estimates predict that only around 3% of Chinese seniors are willing or are able to afford the sorts of services that Lendlease is offering. The vast majority are expected to stay at home or at government-subsidized nursing homes. Though that’s still a large enough number given China’s massive elderly population, the low figure does signify a difficulty for investors.

#lazy-img-373102628:beforepadding-top:66.64999999999999%;Ardor Gardens

The canteen at Ardor Gardens.

Source: Lendlease Corp Ltd.

As of June, Lendlease had only managed to fill about a quarter of the first 100 or so apartments at Ardor Gardens that it put on the market about 10 months earlier.

In a recent report, consulting firm Qianzhan Industry Research Institute noted that the occupancy rate of private elderly homes, mostly located in wealthy areas such as the Yangtze River Delta, is hovering at 37%-48%, far below the 85% they need to break even. Customers are deterred in part by the cost, due to high land prices and the absence of a real estate investment trust market — a key long-term funding channel for elder-care property investors in developed markets like North America, Europe and Japan.

Lendlease’s Ding believes that getting dozens of seniors to part with their money for a rental property in Ardor Gardens is significant, given the pandemic. More notable, he thinks, is that the mentality that seniors should spend their savings on owning a property in order to pass it down to the next generation — rather than on their own leisure — could finally be starting to shift.

To that end, Tang, who is in his 70s and anticipates moving in to Ardor Gardens in September, is the sort of retiree that investors are banking on — cash-rich, open-minded, and looking to have fun in their twilight years.

“Our purpose is not to just spend money buying a property,” said Tang. “It’s for a more exciting second life.”

— With assistance by Charlie Zhu, and Emma Dong

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    Condo Smarts: Existing buildings can be good investment – Times Colonist

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    Dear Tony: We are retiring this year and considering downsizing to a condo. We have started looking at both new and existing properties around Vancouver and Victoria, but we encounter challenges with both options.

    New developments are often available only through presales and the time periods for completion would require us to sell, rent until the property is ready, and with few assurances of completion dates would require us to move twice with no guarantees how the properties would be managed or how fees would be structured for long term operations.

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    Existing buildings are more attractive; however, we find most properties are sold within days of listing, and there appears to be more of a concern by realtors to keep strata fees low rather than looking at the age of the buildings and the long-term maintenance to protect owner investments.

    Are there any standards or consumer rules we might consider following? As new buyers into a condo lifestyle we would like to avoid a sinking investment.

    Karyn and Jerry W.

    There are many existing buildings and communities that are an excellent investment. They are easily identified by reviewing the financial reports, investments, a depreciation report completed by a qualified consultant or reserve planner, and by reviewing the minutes of the strata corporation to identify how they address maintenance, planning and funding for the future.

    While every building has different amenities, staffing and servicing requirements, an annual budget that identifies all the service contracts for maintenance and operations is a significant asset. An active use of the depreciation report to plan for future renewals and major maintenance components is a healthy indication of a well managed property.

    Low strata fees are problematic for strata corporations as they often indicate a community dependent on special levies. Special levies require a 3/4 vote of owners at general meetings and many owners vote against a special levies generally due to affordability issues. The result of failed special levies is deferred repairs that will only rise in cost and damages, and the potential for court actions or CRT orders.

    There is also a direct link between low strata fees, deferred maintenance and renewals, and higher risks for insurers. This results in higher insurance rates and deductibles for strata corporations.

    Buyers should always request copies of depreciation reports, any engineering and environmental reports, minutes of annual meetings, the bylaws and rules of the property, copy of the strata insurance policy, and a Form B Information Certificate, which will also identify any courts actions or decisions against the strata corporation. Read all documents and discuss any issues with your realtor and lawyer. This should help separate the well managed buildings vs the buildings at risk.

    New construction in some ways is easier to manage as the strata corporation is enabled to make the right decisions that will impact funding and future operations. Owners can have a direct effect on their investments by joining and supporting the newly formed strata council and making decisions that ensure a well funded and planned operations plan.

    Strata fees for new properties often start low in the first year as there are service contracts included with the new construction that are included in the warranty period and some developers will entice buyers with low costs. Plan on an increase of fees once all units are occupied and the strata corporation is fully serviced for operations and maintenance.

    This may be impacted by insurance costs, staffing, and consulting for warranty inspections, legal services and the management of warranty claims, the commissioning of a deprecation report, and operational requirements.

    Every building, which consists of endless components, will have failures. The effective management and planning of those issues when they arise is the true test of a well managed property. Product failures and installations are often beyond anyone’s control; however, a well funded property will also be able to respond without a significant crisis for owners.

    Tony Gioventu is executive director of the Condominium Home Owners Association.

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    Investing inside a corporation: what you need to know – MoneySense

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    FPAC responds:

    Congratulations on your successful retirement! At a stage when most people are focussed on decumulation, you’re asking about establishing an approach for long-term, tax-efficient investing inside your corporation. Let’s walk through these important considerations:

    Investment decisions: robo-advisor or DIY—and ETFs or bank stocks?

    A robo-advisor is a great choice for automated, tax-efficient and low-cost investing. A robo-advisor will be able to set you up with a portfolio of low-cost, widely diversified ETFs. Regular rebalancing, quarterly reporting and ease of use will make this option attractive if you are looking for a hands-off approach. Most of the leading robo-advisor platforms in Canada will help you set up a corporate account. 

    If you’re comfortable being a little bit more hands-on, you might consider implementing a multi-ETF model portfolio. This approach will require you to open an account at a brokerage and do some regular investment maintenance, including allocating cash, reinvesting dividends and rebalancing

    Alternatively, you could also consider implementing an asset-allocation ETF solution. These “all-in-one” ETFs are available in different stock/bond allocations to suit your risk preferences, and they are globally diversified. 

    You mention tax-efficiency being important to you. Broad index-based ETFs track an underlying market index. The stocks and bonds in these indices do not change often, so there isn’t a lot of buying and selling of stocks—also known as “turnover”—happening inside of your ETFs. A portfolio with low turnover will not stir up a lot of unwanted capital gains in years that you don’t want to take money out of your accounts, and less turnover means less tax payable year-to-year, leaving more of your money working for you. All in all, tax efficiency is a huge benefit of an index fund ETF approach to investing, especially if you’re investing inside of a corporation. 

    You also mentioned bank stocks as an alternative. I can understand the appeal of this approach, as buying stocks of Canada’s large financial institutions has proven to be an effective strategy over the past several years. Unfortunately, the past performance of any investment strategy does not tell us much about its performance in the future. And, in the case of bank stocks, your investment will be very concentrated on a single sector, in a single country. This approach to investing carries risks that can be easily diversified away by using broad, globally diversified index-based ETFs. (In fact, Nobel Prize laureate Harry Markowitz famously called diversification “the only free lunch in investing.”)

    Understanding the ins and outs of corporate investing

    Investing inside of a corporation can be complicated. A corporation is taxed differently than an individual in Canada. As individuals, we are taxed based on a progressive income tax system, meaning higher amounts of income are taxed at higher rates. In your case, if you are earning (or realizing) a lower income in retirement, your last dollar of income is likely taxed at a lower rate than it was while you were working. When you combine lower tax rates with other benefits that the tax system provides to seniors—such as pension income splitting and age credits—it is possible that you will not be taxed at the high end of the marginal tax table in retirement. 

    Passive investment income generated inside a corporation, on the other hand, is taxed at a single flat rate of around 50% in Ontario, or close to the highest marginal tax rate. Passive income tax rates are so high because the Canada Revenue Agency (CRA) doesn’t want us to have an unfair tax advantage by investing our portfolios inside corporations.

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    Poland Belittles Media-Law Impact as US Warns on Investment – BNN

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    (Bloomberg) — Poland played down the impact of a draft law ousting U.S.-based Discovery Inc. as a senior Washington official warned that a perceived erosion in media freedom could hit investment sentiment toward the nation.

    The ruling party wants to pass legislation that will force Discovery to sell control of its Polish unit TVN, the largest privately owned television group in the country. The media regulator has also for more than a year not extended the broadcasting license for TVN24, the group’s news channel whose award-winning investigative reports have unveiled corruption at various government levels.

    The draft law proposes to ban companies from outside the European Union, as well as the associated economic areas of Iceland, Liechtenstein and Norway, from directly or indirectly controlling television and radio stations. That would only impact Discovery, one of the biggest U.S. investors in Poland.

    “This law only imposes the obligation to find a capital partner in the European Economic Area, and does not infringe anyone’s freedom of expression,” Marek Suski, a ruling party lawmaker and promoter of the TVN bill, told public radio on Friday. “I think that great American lawyers will find a way to do this.”

    The legislation — which the ruling party wants to approve in parliament next month — has already prompted concern from the U.S. and the EU.

    U.S. companies have invested more than $62 billion in Poland, second only to Germany, and provide employment for 267,000 people, according to the American Chamber of Commerce.

    ”This is a very significant American investment here in Poland,” Derek Chollet, a counselor at the State Department, told TVN24 in an interview during his visit to Warsaw on Thursday.

    Failure to extend the Discovery unit’s broadcasting permit “will have implications for future U.S. investments. But it’s also a question of values” as “media freedom is absolutely crucial — a free press is important to empowering society,” he said.

    ©2021 Bloomberg L.P.

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