Professional Interpretation

Abstract: Under the dual effects of government regulation and downward economic pressure, many real estate enterprises have begun to explore new investment opportunities. With the rapid development of the old-age industry in China, the senior housing real estate is favored by the real estate enterprises. However, in the absence of a replicable mature business model, it is necessary for the real estate enterprises to solve the problems of exploring the development path of the senior housing real estate suitable for the characteristics of the enterprise, and to prevent the legal risks. The Real Estate and Infrastructure Team of Beijing Docvit Law Firm will launch a series of articles to analyze the development mode of the senior housing real estate from many angles, and provide the whole process legal service for the real estate enterprises engaged in the aged service industry. 

Ⅰ. The present situation of China's pension industry

1. China's population aging is growing rapidly and on a large scale

By the end of 2017, China’s population over the age of 60 reached 240 million, and the population over 65 reached 158 million. According to the statistics and projections of the United Nations Population Division, China will have 340 million people aged 60 and above by 2030, accounting for 25 percent of the total population. The great scale of aging population and the growth rate is the two main features of the aging of China. It also means there is a huge demand of China's pension industry. According to forecasts, the scale of China's pension industry is expected to reach 22.3 trillion yuan by 2030, and the next 10-15 years will be the golden period for the rapid development of the old-age industry. 

2. The present situation of the old-age real estate enterprises

With the gradual disappearance of the "demographic dividend", a large number of enterprises are optimistic about the development of the old-age industry, and have dabbled in this field. As of 2014, more than 80 real estate companies have entered the field of senior housing real estate. Although a large number of real estate companies are optimistic about the prospects of the pension industry, after 10 years of layout, it is still in the trial stage. On the basis of imitating the mature old-age community model in foreign countries, the real estate enterprises mainly focus on the construction and operation of a single project, failing to form a large-scale, more mature business model, and the whole industry has not been able to make profits. Even so, under the increase of the aging population and the stimulus of the policy dividend, the real estate companies are still eager to try and explore the development path of the senior housing real estate in different modes.

Ⅱ. The legal and policy environment of the old-age real estate industry in China

1.The basic legal system in the field of old-age real estate

On the legal level, the Law of the People's Republic of China on Protection of the Rights and Interests of the Elderly stipulates such contents as family support and upbringing, social security, social services, social preferential treatment, livable environment, and so on. This law clearly puts forward a social old-age service system based on home, community and institution. 

In terms of administrative regulations, Opinions on Accelerating the Development of Old-Age Care Service Industry, aiming at the problems of insufficient supply of old-age care services and products, unsound market development and unbalanced development between urban and rural areas and regions, puts forward opinions on further accelerating the development of the old-age care service industry.

At the departmental regulatory level, the application, acceptance and review of pension service institutions, the service content, management methods, supervision and inspection of pension service institutions, and the development and utilization of pension service facilities are specified in documents such as the Measures for Establishment Permit of Pension Service Institutions.

2.National policy orientation and policy dividend

In this year’s two sessions, Li Keqiang, the Premier of the State Council, pointed out in annual government work report that it is necessary to vigorously develop the old-age service industry, especially the community-based service industry, and give tax relief and financial support to organizations that provide services such as day care, rehabilitation care, catering and other services in the community.

Since 2016, nearly 30 provinces and municipalities across the country have issued relevant policies to further reduce the threshold for the establishment of old-age institutions, relax the entry threshold for foreign investment, simplify the approval process, and encourage profit-making institutions to set up pension institutions. At the same time, the state also gives preferential treatment to the old-age service institutions in terms of tax policy, including exemption from value-added tax on institutions providing pension services and temporary exemption from taxes and fees on property owned by old-age service institutions. Farmland occupied by institutions for the aged shall be exempted from farmland occupation tax. 

Ⅲ. Dilemma of the development of senior housing real estate

In general, China's pension industry has a huge market demand, which is no different from a good development opportunity period for real estate enterprises. However, as the current market has not yet generated mature standards and norms, and there is no mature business model that can be replicated, for the long investment cycle, low return on the pension industry, real estate enterprises need to face the following difficulties. 

1. Policy is hard to land

The concept of senior housing real estate has been around for a long time, but the whole market is still unclear. Although the state has issued relevant policies to encourage and support the pension industry, the implementation of policies is still a pain point for the industry. In terms of access to land, local governments are reluctant to sell better land for old-age services. In the construction of facilities, the renovation cost of old buildings is high, and the energy consumption such as electricity is often collected according to the commercial price standard. In the development of the project, some communities lacks the ability to develop, but also do not want to entrust the professional institutions, eventually make good community pension projects aborted. 

2. Balance public welfare and profit-making

The biggest difference between the senior housing real estate and the ordinary housing is that the development of the senior housing real estate must focus on the operation and service later. If there is no customer base in the short term, it is likely that for later service providers, they will not be able to afford high operating costs and be unable to provide a continuous pension base service. Therefore, for enterprises engaged in senior housing real estate, the high cost of construction and operation often force them not to insist on the original idea of construction, but also to reduce the quality of service or sell the real estate as soon as possible to obtain benefits.

3. Legal risks of old-age service

The mode of senior housing real estate is not entirely in the real estate industry, but is more focused on the service industry. In view of the deterioration of physical and psychological functions, pathological changes and other sudden situations in the elderly, it is a common problem that how the old-age institutions should deal with and how to solve the related risks. Most enterprises choose to set up hospitals when building old-age communities, but most of these hospitals are similar in size to community hospitals, and can not really meet the many medical needs of the elderly. A policy and commercial insurance model can be established through insurance institutions to coordinate the liability insurance of the developer with the accident injury insurance of the elderly. In this way, on the one hand, it can help solve the huge economic responsibility that enterprises may assume when encountering such risks; on the other hand, it can also ensure that the elderly can get timely financial support.