Shortage of care homes creates opportunities as UK population ages
How investors can make the most of the boom in retirement property in the UK
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 sixfold, and one in 12 people will be aged 80 or above. This is due to the baby-boomer generation reaching old age, while improvements in medical care mean people are living longer.
With an ageing population comes an increased demand for medical and care-home facilities. While most people can now expect to live a long life, there is also a higher likelihood of dementia – with increases of more than 60% in such diagnoses recorded over a seven-year period.
According to the respected Lancet Public Health medical journal, 2.8-million over-65s will need nursing and social care by 2025 – an increase of 25% from 2015. A number of countries are struggling to make their balance of payments and are running deficits. Cuts to public spending mean that even in the UK, which has a free health service, there are already not enough care beds to cater for elderly patients. What will happen when the demand increases?
Luxury retirement communities deserve a mention
It is not just nursing care homes that are in short supply. At the luxury end of the market in the UK, there is also a profound shortage. The warmest areas in south-west England are the most desirable but also have green-belt protection from new development. The quaint villages attracting retirees have restrictive planning by-laws that prohibit large-scale developments, ensuring that the prevailing undersupply problem is structurally impossible to resolve.
Some ingenious developers have set their hands to converting large period buildings into luxury retirement homes. For example, a 14-bedroom stately manor home - which may have been impractical to maintain – is acquired and converted into 21 luxury apartments designed for over-65s. These estates, set among rolling country hills and quiet sandy beaches, form the perfect backdrop for a retirement community.
Residents enjoy the culinary delights of an on-site chef and weekly events such as wine tastings and country walks. In addition to the social benefits, they have access to care. These properties are not nursing homes for the elderly and infirm; they are typically aimed at the able-minded and active retirees who seek a sense of community.
According to the consumer research company Which?, the shortfall in suitable accommodation in the regions of Devon and Cornwall, for example, 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%). Such regions certainly are experiencing a chronic shortage of accommodation amid growing demand because of the ageing population.
How to be content in retirement: avoiding loneliness
Many elderly people choose to live in a studio apartment in a retirement community simply because of the social aspect. Those whose children have flown the nest and who no longer have a partner often miss simple day-to-day interactions. According to research in 2017 conducted by AgeUK, 31.4% of over-65s said that their main company was the television, and 8.5% “often or always” felt lonely.
Retirement homes offer the elderly a place to live and thrive. They organise regular social activities such as wine tastings and walks along the beach to stimulate residents’ interests and giving them the opportunity to mingle with one another.
Baby-boomers are some of the richest retirees yet
Luxury retirement homes usually attract self-paying residents, who usually have the strongest fundamentals. Baby-boomers (the generation born between 1946 and 1964) have reaped the benefits of the post-war economic boom and are the wealthiest age group yet to retire, benefiting from free healthcare (in the UK), defined benefit pension schemes and a long run of economic growth.
This category of customer bracket, also known as the silver pound, comprises sociable and affluent customers who know what they want and have the money to pay for it. These are the same people who will be the potential occupants of caring communities.
Global real estate consultancy CBRE says it is a good market to enter into the luxury retirement sector: “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% of care-home operators are reporting profit margins of 40% or more, and more than a third are reporting margins of 30% on operational income. Operator such as the Berkley Care Group have reported profits of £30,000 (R410,000) per bed.
How can investors access the UK retirement property boom?
“Our retirement home investments are generally located in areas where there is a high elderly population, such as the Isle of Wight, Cornwall and the picturesque landscape of the north-east [of England],” says Arran Kerkvliet of One Touch Investment. “People want to be surrounded by countryside that they explore during the day and enjoy a slower pace of life. They don’t want to experience the hustle and bustle of city life.”
Luxury care-home investment opportunities are usually renovations of Grade II listed buildings or elegant Victorian buildings – typically associated with high-class living. Fine dining is a daily occurrence, often prepared in-house by a top chef, as are wine tasting events and trips to explore the area. Many of these homes have salons, gyms, cinemas and swimming pools.
Depending on the location, investors can buy a suite in a retirement home from £69,950 (R1.2-million) and receive a 10% return per year over a 10-year commercial lease with monthly or quarterly income payments.
The contract has a flexible exit clause in favour of the investor, whereby they can trigger the buy-back option in year five with 10% uplift or in year 10 with 25% uplift. These investments are ideal for those who want to capitalise on the weak British pound currency valuation and are too busy to manage the day-to-day activities that a buy-to-let property usually requires.
In short, luxury retirement-home investment is a robust class, and the profitability should only be buoyed by the ageing population and the undersupply of retirement property, specifically in the warmest coastal regions of the UK.
More about One Touch Investment
From retirement homes in Cornwall to retirement accommodation in Devon, One Touch Investment is an investment property broker with South African roots. Its expert team will provide insights to investors able to meet in Cape Town or Johannesburg between February 7 and 18.
This article was paid for by One Touch Property Investment.