Trend of Hong Kong elderly services Industry

The residential care home services (“RCS”) domain in Hong Kong consists of a mix of public and private residential care homes for the elderly (“RCHEs”)

1. Overview of the historical development

As the aging population in Hong Kong continues to grow due to decreased fertility and increased longevity of population, ‘‘Care for the Elderly’’ was introduced as a strategic policy objective of the Hong Kong Government in 1997. The residential care services domain in Hong Kong consists of a mix of public and private residential care homes for the elderly. 

The Hong Kong Government encourages NGOs to operate self-financing or subvented RCHEs to cater for the needs of the elderly. However, there is a long waiting time for a place in a subsidised RCHE. To shorten the waiting time, the Hong Kong Government introduced the Enhanced Bought Place Scheme (EBPS) in 1998 which aims to increase the supply of subsidised places for the elderly by ‘‘purchasing’’ places from private RCHEs. At the same time, the EBPS would upgrade the service quality of participating private RCHEs as it requires them to enhance staffing ratio and per capita space standards.

To ensure that subsidised RCHEs are taken up by elderly with genuine needs, the Standardised Care Need Assessment Mechanism For Elderly Services (SCNAMES) was introduced by the SWD in 2000 to ascertain the care needs of elderly and match them with the appropriate type of RCHEs.

2. Demand and Supply 

RCHEs in Hong Kong are categorised according to 

(i) their financing nature (private and non-private (comprising subvented, self-financing and contract)); 

(ii) their service nature (comprising nursing homes, care and attention homes, aged homes and hostels for the elderly).

(i)According to the financing nature of RCHEs

By the financing nature, there are five types of RCHEs in Hong Kong, namely 

(1) non-private subvented RCHEs; 

(2) non-private self-financing RCHEs; 

(3) non-private contract RCHEs; 

(4) private RCHEs participating in the EBPS; 

(5) private RCHEs not participating in the EBPS.

As at the end of June 2016, there were 732 RCHEs providing residential care home services for elderly in Hong Kong, by the financing nature, of which 544 (i.e. approximately 74.3%) were private RCHEs whereas the remaining 188 (i.e. approximately 25.7%) were non-private (subvented, self-financing and contract) RCHEs. 

The number of non-private RCHEs has been growing from 169 in 2011 to 184 in 2015 mainly due to:

1) the Hong Kong Government’s initiatives in awarding contracts to NGOs to establish contract homes. Particularly, according to the Legislative Council of Hong Kong, the Hong Kong Government expects another seven new contract RCHEs will commence services by 2018 and has earmarked sites for 13 new projects;

2)  the Hong Kong Government’s efforts to focus on expansion and upgrading of current subvented and self-financing RCHEs.

(ii)According to the service nature of RCHEs

According to the SWD, the service nature of RCHEs can be categorised in four types, namely, nursing homes, care and attention homes, aged homes and hostels for the elderly. 

Below please find the chart regarding the Number of RCHEs in Hong Kong by financing nature and service nature from 2011 to 2020:

3.Revenue of the Industry 

According to the analysis from Ipsos Business Consulting's IPO team, the total revenue in the RCHE industry has grown by a CAGR of approximately 7.4% between 2011 and 2015 from approximately HK$6,206 million to approximately HK$8,271 million. It is expected that the total revenue in the RCHE industry would reach about HK$11,490 million in 2020, representing a CAGR of 7.0% from 2016 to 2020. 

The increase in the size of the RCHE market can be attributable to several factors, such as 

1) increase in RCHE fees due to the passing of rising operational costs to residents; 

2) increase in number of elderly in the society due to the ageing population; 

3) decrease in the ability of the family in shouldering the care responsibility due to reduced family size; 

4) decrease in social trend of co-residence of adult, children and their elderly parents; 

5) only limited space is available in residential flats in Hong Kong; and 

6) rise in rental prices.

4. Level of Fees 

Generally, private RCHEs that charge towards low end of the fee range consist of those where six or seven residents are placed in a single room in a private RCHE. On the other hand, those private RCHEs that charge towards the high end of the fee range will enable residents to enjoy a single occupancy room. In 2011, the minimum fee charged by a private RCHE was HK$3,800 per month. In 2015, the minimum fee in this category was HK$4,700 per month.

High-End RCHES

The private RCHEs which target Hong Kong’s middle class tend to charge a more expensive fees in the range of maximum fee between HK$7,500 and HK$13,500 per month in 2015.

According to a bank survey in 2015, approximately 56,000 people in Hong Kong have total net assets of over HK$10.0 million. Among this population, the average age is 58 years with average total net assets of HK$49.0 million. It is thus anticipated that the number of elderly, who are able to afford high-end RCHEs, will grow when these people age. In June 2016, RCHEs with high-end monthly residential fees of HK$27,000 or above represent the minority of all RCHEs, representing approximately 2.0% of the total number of RCHEs in Hong Kong. Such RCHEs comprised non-subsidised non-private RCHEs (approximately 64.0%) and subsidised non-private RCHEs (approximately 36.0%), without any private RCHEs. These RCHEs charge higher fees as they offer more sophisticated additional services, including individual care plans, rehabilitation services, and specialized medical services to maximum comfort for the elderly residents. The average occupancy rate of RCHEs with high-end monthly residential fees of HK$27,000 or above was approximately 87.0%.

The most noteworthy increase in occupancy rate is in the private RCHEs with places that are priced above the average maximum price range. Even though the price of these places has increased over the years, there has been an increasing preference and ability to pay by elderly residents as evidenced by the increasing occupancy rate. 

The diagram and table below show the occupancy rate of private RCHEs in Hong Kong by maximum price range from 2011 to 2015:

5. Future Opportunities

Ipsos Business Consulting IPO team believes the future opportunities to the RCHE industry in Hong Kong include:

1) Rising standards of living will drive demand for better quality residential care home services which is in line with Hong Kong’s positive GDP capital trend. There has been a steady increase in the average annual household disposable income; therefore, driving the ability of Hong Kong families to spend on RCHEs and such growth reflects the increasing ability of Hong Kong families to spend on RCHEs that are more expensive but provide a higher quality of care to elderly resident;

2) The HK Government will continue to increase the number of subsidised private RCHE places through EBPS. Additional resources were provided by the HK Government to purchase more places under the EBPS from private RCHEs. It is expected that non-private RCHEs places are unlikely to accommodate the growing demand by the applicants on the CWL.

6. The threats and challenges

Ipsos Business Consulting IPO team believes the threats and challenges to the RCHE industry in Hong Kong include:

1) Negative reports about elder abuse cases in private RCHEs. Negative news and media exposure of abuse cases may result in negative perception about the quality of private RCHEs and cast doubt on effectiveness of inspection and licensing system for monitoring private RCHEs.

2) New alternatives by the HK Government to address the shortage of subsidised RCHE places might induce more elderly choosing to retire in the mainland. For instance, the pilot residential care home services scheme in the Guangdong Province introduced in 2014 provides an option for elderly to consider choosing to live in RCHEs in the mainland. The portable comprehensive social security assistance scheme (“PCSSA Scheme”) enables elderly recipients to continue receive cash assistance under the CSSA Scheme if they choose to take up permanent residency in the Guangdong Province or the Fujian Province.

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