According to a recent Savills report, it is believed that the UK will need to provide at least 18,000 care homes a year in order to meet the 2% annual increase in the number of over-65s.
The demographic changes in the UK over the past generation, mainly the increasing average life expectancy, means that there is now far greater demand for care homes specifically for the older generation.
Savills estimate that the over-65s possess over £1 trillion of mortgage-free housing wealth. A majority of these households currently reside in house that are unnecessarily large. As such, there is potential for as many as 3m households to be changed and downsized into retirement homes.
The UK care home market has seen some investment from investors over the past few years, such as the purchase of 27 care homes by a US hedge-fund in 2014. Kenneth MacKenzie, manager of Target Healthcare, a healthcare investment specialist, believes that ‘the UK’s ageing care home stock requires to be substantially upgraded.’
This is due to two main factors: firstly, the changing demographics in the UK where there are larger amounts of older people. At the end of the 19th century the average retiree lived for two years post-retirement compared to 20 years today. Secondly, the small market share of the UK care home sector when compared to other developed nations. Currently, just 4.8% of older people in the UK live in retirement housing, whereas some 17% of over-60s in the US and 13% in New Zealand & Australia live in care homes.
The increasing investor interest may be surprising to some – the sector has had it fair share of scandals over the past few years. Care homes have been the subject of inquiries regarding poor standards, including various abuse related issues, such as the exposing of the care home that mocked patients.
Yet, one investor said that this scandal was almost a positive to investors as it balanced demand to supply slightly more. Once demand returns to its equilibrium level, he believes that demand will hugely outstrip supply. Furthermore, the scandals show that there is potential to gain from the market by providing premium care homes with premium staff.
Currently, a modern care home in London will cost around £9,400 a year per bed. Although this is much higher than the rest of the UK, it does not necessarily represent the best deal. Buyers are now looking outside of London to higher yield areas, especially Cathedral cities, where there tend to be greater amounts of elderly people. Since they are less geographically mobile than the rest of the population, location is a very important factor to be considered for care homes.
What can the average investor do?
For the average investor, who is extremely unlikely (unfortunately) to have the multi-million pound capital needed to build a care home, there are two options. Firstly, they can simply buy equity within one of the funds that are investing in these healthcare projects. Secondly, they could try and cater to the older market without necessarily providing care homes. The property market for older people is still under supplied, so therefore premium accommodation with features tailormade for the older generation could be extremely popular, with amenities such as: wheelchair access, stairlifts, and handrails. These should be provided within smaller, comfortable accommodation, for example bungalows and apartments. As mentioned prior, location is also an extremely important factor to consider for a less mobile section of the population.
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