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Why is Lendlease investing in Chinese aged care?

According to an article in the Australian Financial Review (AFR) on Monday evening, Lendlease Group  (ASX: LLC) has plans to invest in more than $2 billion in new retirement villages across China over the next 5 years – but why?

What are Lendlease’s plans for Shanghai?

The Aussie development company is set to launch a pilot program in Shanghai this week as it tries to get a foot in the door of China’s booming aged care sector.

Lendlease’s first $400 million facility is expected to house more than 1,000 residents in 850 apartments outside Shanghai, adding to its existing status as Australia’s largest owner and operator of retirement villages in Australia.

Lendlease CEO Steve McCann unveiled the company’s $400 million project on the outskirts of Shanghai on Monday, capping a project that started with the signing of a 50-year land usage contract with the provincial government in January.

The Lendlease share price barely moved on the news yesterday given it has already been largely priced in by the market, closing 0.07% higher at $14.21 per share (up 27.9% since the start of the year), and has now dropped back down in morning trade to $14.13 (at the time of writing).

Why invest in China’s aged care sector?

Despite boasting the world’s largest population with 1.3 billion people, China’s population demographics suggest the aged care sector could be set to boom.

The impact of the country’s One Child Policy is now being felt, as the country currently has over 250 million aged over 60 of people entering the retirement age bracket with less children to care for more parents.

Coupled with an increase in wealth across the country, there is a potentially lucrative market waiting for foreign operators in the aged care sector in China, which is why Lendlease is in a race against several big-name players to capture a slice of the sector.

The Lendlease share price has managed to rebound in 2019 despite a significant fall in February after the company reported a writedown in its engineering business and scrapped a $300 million bond issuance in light of the struggling segment.

While Lendlease has had its fair share of troubles in 2019, it hasn’t been the only construction company in the same boat, with both Emeco Holdings Ltd (ASX: EHL) and Seven Group Holdings Ltd (ASX: SVW) investors riding out waves of share price volatility this year.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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