While many are concerned about China's aging population, real estate developers see it as an opportunity.

The one-child policy has made elder care a severe burden, leaving a generation of couples to take care of four parents. So retirement communities represent a potential source of profits, especially as the rest of the property sector remains depressed, and with no end in sight to government curbing policies.

A number of property giants have announced plans to begin rest home developments, but the market is still immature and questions have been raised over the business model. Homes in retirement communities have been highly expensive thus far, and there are calls for more affordable options.

Grab the business chance

"Rest home development will be one of our main business areas in the next three years," Feng Yufeng, deputy general manager of Greentown China Holdings Limited, a domestic real estate developer, told the Global Times.

Feng said Greentown is developing a retirement community project in Wuzhen, a famous watertown near Shanghai, and it is planned to be completed within two years.

Total investment in the project, which will offer around 6,000 homes, will be 800 million yuan ($126 million) to 1 billion yuan.

Unlike the system in developed countries, most of Greentown's rest homes in Wuzhen are for sale rather than for rent.

Beijing Capital Land will also launch a rest home project, which will be rental-based, in the next two to three years, the developer said in an e-mail to the Global Times.

Other developers like China Vanke Co, Poly Real Estate Group, and Gemdale Corp have also announced that they will start investing in retirement properties.

The right model

While developers are enthusiastic about the growing retirement market, there is still doubt about what is the best business model.

There is no obvious difference in operation between Greentown's rest homes and its standard residential properties. Both types have the same development procedure - land purchasing, property construction and then home sales to the buyers.

"We are groping for a mature business model, which could make it easier for elderly people to pay for care and rest homes in their old age, but it takes time," Feng said.

Feng said his project's potential customers would be elderly people who have to sell their properties in the downtown areas of big cities in order to buy a home in the retirement community.

But Chinese parents often prefer to leave homes to their children after they die, posing a cultural challenge to Feng's strategic goal.

Sun City in Beijing, developed by Beijing Sun Cities Group, is seen as one of the country's most successful rest home projects so far. Like Greentown's project, most of the Sun City homes were sold, and only two-fifths of them are for renting.

It takes at least 15 years for developers to recover the costs of building rental properties, so the developers have to sell part of the properties to ensure their cash flow, Zhu Fengbo, the president of Beijing Sun Cities Group, told the Global Times.

Some developers have explored another nursing home payment method, membership tenant systems, which is popular in the US.

Cherish Yearn Rest Home in Shanghai adopts this kind of membership mechanism, under which seniors pay a one-time membership fee when they become members, and then pay an additional fee each month to rent a home.

Only for the rich?

Most of the residents living in these rest homes at the moment are more affluent people who can afford the high sales prices or rent.

The cost of buying a home in Sun City is now 15,400 yuan per square meter. For those who rent their homes in Sun City, the average cost per month including nursing fees is 5,000 to 6,000 yuan. Some elderly people have decided to leave because the rent has been rising by around 200 to 300 yuan per month each year, Beijing Morning Post reported in July.

Residents in Cherish Yearn need to pay a one-time membership fee of 150,000 to 300,000 yuan to become members, and then pay an additional fee of around 3,000 yuan a month to rent a home.

But the average pension for company retirees nationwide was just 1,511 yuan per month last year, according to the Ministry of Human Resources and Social Security. So there is an urgent need to find a new method that can make nursing homes more affordable.

In the US, the most common model is reverse mortgages, a type of loan available to seniors in which they mortgage their homes to a third party and in return get payments every month to pay for a rest home with nursing services.

But it is difficult to implement the reverse mortgage model in China, partly because it is very complex to estimate properties' value, and also hard to decide on the interest rate that commercial banks should charge, said Zhu.

"Unlike in the US, home owners in China can only own a residential property for 70 years. That presents another obstacle in estimating the value of people's properties," Zhu noted.

Foreign firms have also started investigating China's rest home market. Fortress Investment Group, a global investment management firm, plans to invest $1 billion in the sector, China Times reported last February

But, said Zhu, "some foreign investment firms came to us to inquire about the business opportunity last year, but finally they left as the whole business environment is still immature."

Policy support

Beijing Municipal Bureau of Civil Affairs said in a notice last October that it plans to experiment with reverse mortgages as a new way for people to pay for care in nursing homes during the 12th Five-Year Plan (2011-15).

Insurance companies, commercial banks and public housing management departments will be encouraged to start trials of reverse mortgages, the notice said, without disclosing specific supportive policies.

Also, Beijing's local government will offer five plots of land with lower prices for rest home development, according to Zhu of Sun Cities.

"The government is busy with building a huge amount of affordable housing for residents with lower incomes," said Feng of Greentown. "But they also need to spend money on the old age care industry, as the issues brought by the aging population will be more serious in the next decade."