NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, July 8, 2015

Chinese real estate developers have begun chasing what they see as the country’s next big business opportunity — the health-care market.

As the world’s second-largest economy expands at its slowest pace since 1990 and rising land costs curb profit margins, many debt-ridden developers are tapping healthcare as a lucrative alternative. At least 15 of China’s 133 listed developers have diversified into areas such as hospitals, senior homes, and even plastic-surgery facilities, company statements show.

Most companies are making a gradual transformation, while some have retreated completely from property development. Last month, a former industrial developer changed its name to Winsan Shanghai Medical Science and Technology Co. after investing in a firm that supplies computer systems to small hospitals, as well as a Singapore-based wearable device maker.

Winsan has said it was pushed by the market environment. “The first stage of our transformation has been successful and we have basically exited from real estate,” Chairman Qian Rengao, said in a television interview in May posted on Winsan’s website. This company didn’t respond to requests for an interview.

Cut Red Tape

China’s developers have been struggling with an inventory of unsold homes. Despite signs of recovery, growth in home sales has remained flat compared with 20 percent annual expansion for more than a decade since 1998, said Liu Yuan, a research director at Centaline Group in Shanghai. “Therefore, developers need to make new attempts to maintain profit growth.”

In contrast, demand for health-care services is expanding, and public hospitals are struggling to keep up. The government aims to expand its health services industry to more than eight trillion yuan ($1.3 trillion) by 2020, and recently issued policies to cut red tape and boost financing for private investment in hospitals.