Shortage of UK care homes creates opportunities

Governments are unable to meet the growing demand for care homes and retirement villages. Over the next 25 years the number of centenarians is predicted to increase six-fold and one in 12 people will be aged 80 or above. This is due to the “baby boomer” generation reaching old age and improvements in medical care that mean people are now living longer. With an aging population comes an increased demand for medical and care home facilities. While it is a good thing that most people can now expect to live a long life, there is also an increased likelihood of dementia: increases of more than 60% have been recorded over a seven-year period.

According to the respected Lancet public health medical journal, 2.8 million over 65s will require nursing and social care by 2025, an increase of 25% between 2015 and 2025. A number of countries are struggling to make their balance of payments and are running deficits. Cutbacks are being made on public spending — even in the UK, where there is a free health service, there is already a lack of available care beds to cater for the current elderly patients — what will happen when the demand increases? shortfall in suitable accommodation in regions (counties) such as Devon and Cornwall will be 29% and 25% respectively. Perhaps unsurprisingly, these two counties are home to high numbers of over 65s. There are 160 400 over 65s in Devon, which makes up 21.3% of the total population, 31.5% above the national average. Cornwall has an even higher percentage of over 65s, making up 24% of the total population (against a national average of 18%). These regions are experiencing a chronic shortage of retirement facilities and growing demand because of the ageing population. the coop and who no longer have a partner around often miss simple day-to-day interactions. According to research in 2017 conducted by AgeUK 31.4% of those aged 65+ have said that their main company is the television, and 8.5% “often or always” feel lonely. Retirement homes offer the elderly a place to live and thrive, hosting regular social activities, stimulating residents’ interests as well as providing them the opportunity to mingle with one another. Luxury retirement homes usually attract self-paying residents, and these usually have the strongest fundamentals. Baby-boomers (the generation born between 1946 and 1964) reaped the benefits of the post-war economic boom and are the wealthiest age group ever to have retired. They benefit from the free healthcare in the UK, defined benefit pension schemes and a long run of economic growth. This customer bracket is also known as the “silver pound” — sociable and affluent customers who know what they want and have the money to pay for it — the potential occupants in caring communities.

Global real estate consultancy CBRE says that it is a good time to enter into the luxury retirement sector because: “Savvy alternative lenders who are comfortable with the sector risks could capitalise on mainstream lenders’ limitations. By lending at appropriate leverage and structuring a facility that is protected in downside scenarios, there is an opportunity to back a high range of quality sponsors and support growth in the sector.”

According to research conducted by Knight Frank, 9% are reporting profit margins of 40% or more, and over a third are reporting margins of 30% on operational income. Operators such as the Berkley Care Group have reported profits of R410 000 per bed.

Luxury care home investment opportunities are usually renovations of Grade II listed buildings, or elegant Victorian buildings typically associated with highclass living. Many of these luxury retirement homes have onsite salons, gyms, cinema rooms and swimming pools for residents to enjoy at their leisure.

Depending on location, investors can purchase a suite in a retirement home from R1.2million and receive a 10% return per annum over a 10-year commercial lease, with monthly or quarterly income payments. The contract has a flexible exit clause in favor of the investor, whereby they can trigger the buy-back option in year five with 10% uplift or year 10 with 25% uplift. These investments are ideal for those who are too busy to manage the day-to-day activities that a buy-tolet property usually requires.

In short, luxury retirement home investments are a robust investment class, and the profitability should be buoyed by the aging population and undersupplied retirement property, specifically in the warmest coastal regions of the UK.