Senior-Friendly Industry Worth 85 Trillion Won, But Silver Housing Market Only 240 Billion... "Sales Must Be Permitted" [Open-Door Silver Housing]

Growing Senior-Friendly Industries, But Senior Housing Market Still in Its Infancy
High Expectations for Market Demand... Industry Calls for Profitability Safeguards First

As the government considers revitalizing senior housing for middle-class elderly citizens, the industry generally agrees with the initiative but responds that "mechanisms to guarantee profitability must take precedence." Companies that have already entered the senior residence business are currently enduring short-term losses in anticipation of long-term growth.

On April 22, a representative of a construction company commented, "Although the elderly population in Korea has surpassed 10 million, senior housing facilities account for less than 1% of that, so there is significant potential for long-term growth. However, initial investment costs, securing urban locations, and obtaining operational expertise are not easy, so we are approaching business opportunities cautiously, carefully weighing profitability."

The domestic silver housing market is still in its infancy, especially considering the scale of the senior-friendly industry. According to the Korea Health Industry Development Institute, as of 2023, the senior-friendly industry is valued at approximately 85 trillion won, but the relevant housing market accounts for only 0.3%, or just 240 billion won. Companies that build and operate silver towns are also posting poor performance. For example, a company that developed a silver town in the Seoul metropolitan area recorded losses of over 3 billion won last year.

Lee Kwanik, Director of the Digital Health Business Division at the Korea Health Industry Development Institute, who authored a related report, stated, "Since companies mainly focus on real estate value and profitability, market growth is inevitably limited," adding, "It is necessary to expand the supply of senior housing combined with care services."

Nevertheless, the construction industry remains interested due to the growth potential. Given the ongoing trend of population aging, there is a strong likelihood of continuous expansion. Industry insiders emphasize that discussions with the government are necessary to ensure profitability.

Residents are playing Baduk at a senior welfare housing complex in Yongin, Gyeonggi Province. Photo by Kang Jin-hyung

The industry's biggest wish is for sales of these types of housing to be permitted. Currently, senior welfare housing built and operated by the private sector can only be offered as rental units. Sales of such housing have been completely prohibited since 2015 due to past issues in for-sale silver towns, such as ineligible residents moving in through loopholes and various disputes. Since then, operators have had to recover their investment over the long term only through lease deposits and monthly usage fees. Even ultra-high-end silver towns fail to turn a profit for the first few years. For public-supported private rental silver towns, sales are only possible after 20 years.

The industry believes that expanding private supply is difficult under the current structure. A real estate development industry official said, "Considering the returns expected by private firms, it is difficult to repay project financing loans and cover initial business costs with a 100% rental model," adding, "At least the construction costs, which account for more than 80% of total project costs, should be recouped through sales at the outset in order to maintain service quality during the operational phase."

However, the government is cautious about introducing a for-sale model. In for-sale housing where individual ownership is recognized, residents may object, saying, "Why should I be forced to pay for expensive, specialized services for the elderly in my own home?" There are insufficient legal means to enforce this. It is also difficult to prevent owners from selling their units to younger people through loopholes or from terminating specialized services for the elderly through residents' committees. This could undermine the very identity of senior housing. A Ministry of Land, Infrastructure and Transport official stated, "For now, we are not reviewing policy on the premise of introducing a for-sale model." However, he added, "If companies say that it is impossible to do business without sales in the current situation where supply is desperately needed, we may consider its feasibility under several conditions."

Some say that locations that can support profitability must also be supplied. A construction industry official stated, "There is a need to expand the application of financing and loan guarantees to the Silver Stay construction projects promoted by the government," adding, "We should also increase public tenders for private operators in business sites in Seoul and the greater metropolitan area, where the elderly population has a strong preference."

The issue of price disputes during the conversion from rental to for-sale after the mandatory rental period is another concern for the industry. A mid-sized construction company official stated, "Even in general public-supported private rentals, there are often disputes between operators and residents over price expectations at the point of conversion to sales," adding, "The potential for future disputes is a major source of uncertainty for companies."

Measures to boost demand for moving in are also being discussed. A real estate development industry official suggested, "It could be considered to provide comprehensive real estate tax relief for those who rent out their former homes when moving in," adding, "This could incentivize elderly people who are reluctant to leave their own homes to move to senior housing in the outskirts of the metropolitan area instead of old homes in Seoul." There are also proposals to link these programs with corporate welfare. The official added, "A model in which large corporations sign memorandums of understanding (MOUs) with the government as part of their welfare programs to provide housing benefits to long-serving employees could also be an alternative."

The government also believes that institutional design is necessary to attract private participation while ensuring that the quality of services for the elderly is maintained in the long term. A Ministry of Land, Infrastructure and Transport official stated, "Securing operators who can maintain high-quality services over the long term is key, not just supplying housing," adding, "We will gather input from experienced service operators from multiple perspectives to derive a sustainable business model."

This content was produced with the assistance of AI translation services.