China's Biggest Developers Are Betting on $2,400 Nose JobsBloomberg News
Wanda, Evergrande lure home buyers with hospitals, senior care
Prices for land for health care come with huge discount
It’s called "Asia’s top-notch plastic surgery hospital," according to the promotional brochure for the grand, Chinese palace-style building near the port of Tianjin.
With nearly 100 VIP suites and doctors from South Korea offering Chinese clients $2,400 nose jobs and $1,000 double-eyelid plasties, the cosmetic surgery palace is a gamble by one of China’s most indebted developers, China Evergrande Group: get into the health-care business as a new strategy to boost profit.
It’s a play that takes advantage of cheaper prices for land designated for health-care use, allowing developers to reap a premium for nearby residential towers that offer home buyers easy access to hospitals, clinics or nursing homes. Developers are also betting they’ll be able to rake in profits directly from soaring demand for medical services.
With the rapid growth of the property market expected to slow in the coming decades, companies such as Dalian Wanda Group and Evergrande, as well as smaller players including Tahoe Group Co. of Fuzhou, are pouring in billions.
Dalian Wanda so far has announced plans to invest at least 85 billion yuan ($12.3 billion) in 13 hospitals, including an ambitious hospital park with 30 heath-care firms headquartered in Chengdu. Suning Universal Co., formerly a residential property developer in Nanjing, has given up building homes in order to plunge into cosmetic surgery clinics China-wide with a 5 billion yuan fund to invest mainly in such hospitals. It purchased one in Shanghai in November.
"What developers truly expect by building hospitals is to boost housing prices by adding value to the complex by integrating all those facilities," said David Hong, Hong Kong-based head of research at China Real Estate Information Corp. "For a hospital itself, the return on investment is usually quite poor. Developers generally want to make experimental forays to see if they can profit from related business.”
In Tianjin, prices at Evergrande Oasis, the residential compound adjacent to the plastic surgery hospital -- which includes a hot-spring spa called Paradise and a European-style "super five-star hotel" -- surged 16 percent to 8,474 yuan a square meter ($114 a square foot) in 2016 after the hospital opened, according to data provided by property consultant Savills Plc. The jump was more than double the increase in the same period at a project by Shenzhen Overseas Chinese, a smaller developer that didn’t build health-care services nearby, the data show.
Yet business appeared to be slow during a visit on a weekday in March. While the cosmetic surgery clinic, which opened in 2015, boasts an all-Korean team and Korean doctors with 15 years of experience, no patients could be seen going in or out. A cleaning woman outside confirmed few clientele. While there’s some sign of residences being occupied, all but one restaurant in the hotel were closed at lunchtime, and the quiet residential compound was sparsely populated with mostly construction workers roaming around.
Evergrande Health Industry Group, the unit leading the health-care push, said China has entered a new era of consumption growth, and demand for health and beauty is on the rise. Evergrande’s other ventures include 12 health-management centers that provide primary and senior care, and a 5 billion yuan cancer hospital linked with Boston’s Brigham and Women’s Hospital, in Boao, on China’s retirement island of Hainan.
"We are optimistic about the market outlook," the company said in an emailed statement, citing industry forecasts of revenues for the Chinese beauty market exceeding 100 billion yuan in 2019.
In its 2016 annual report, Evergrande described transforming itself from a real-estate developer into a "real-estate + services" company by expanding into finance, health care and cultural tourism. Currently, just 2.4 percent of group’s overall revenue of 211 billion yuan comes from these other businesses, with 96 percent coming from property sales. Evergrande’s shares have more than doubled this year.
In the first year revenue was reported, for 2016, Evergrande Health’s plastic surgery and medical services generated HK$65 million ($8.3 million), while another HK$184 million came from sales of residential properties for the elderly.
China has for years sought to draw investors into the hospital industry to ease the rising burden on its public system, fueling a surge in private investment. Developers are helped by government incentives that make the cost of acquiring land much cheaper if it’s designated for health care.
In one case in 2014 in Shenzhen, land was offered by the local government for a hospital for about 750 yuan a square meter, according to the official Shenzhen Special Economic Zone News. Land in Shenzhen for general use sold at an average of more than 15 times higher -- 11,315 yuan a square meter -- that year, the official news agency Xinhua cited property agency Centaline Group as reporting.
That has many cash-rich Chinese developers eyeing “lucrative” profits, analysts at China Real Estate Information wrote in a 2016 report. Developers can benefit from developing the property close to a hospital, for example by drawing higher rental income from senior-care centers built alongside, it said.
Suning Universal and Dalian Wanda declined to comment on their health-care developments.
Hospitals typically require high up-front costs and can easily take more than half a decade to break even. But quality health care can make real estate much more attractive, especially to wealthier and older Chinese who "have an extremely high standard for their health," said Huang Qisen, chairman of Shenzhen-listed Tahoe Group. Huang’s investment unit, Fujian Taihe Investment Co., is investing in centers for cancer exams, gynecology and general health care.
“We can put profitability aside for a while,” Huang told reporters in a March interview in Beijing, calling the relationship between its property development and separate health-care units “a very strong synergy.”
Another project outside Beijing, by real-estate mogul Li Huai’s Hebei-based Yanda Group, includes an 18-story hospital as well as apartments for the elderly. Yanda International Hospital, part of a 15 billion yuan development called health city, has lost money every year since opening in 2011, according to Wang Yong, medical vice president of the hospital.
Demand has picked up since Beijing city directed doctors from public hospitals, Wang said, and there’s a months-long waiting list to get one of the 2,000 spots offering independent living or nursing home care for the elderly. Yanda didn’t respond to emailed questions about the project.
"While my hospital is not-for-profit," Wang said, "the health city is profit-making."
— With assistance by Hui Li, and Emma Dong