An Introduction to Care Home Investments

care homeCare Homes are a relatively new concept in commercial property investments. Offering a unique alternative to a traditional buy-to-let property, this growing asset class provides a substantial financial return, whilst simultaneously acting as an investment in the future of our loved ones.

A market driven by the rising life expectancy of the UK population, investments in care home facilities are becoming increasingly popular amongst private investors as an alternative way of generating a passive income.

According to the Office for National Statistics the UK is at its oldest ever, with those aged 65+ now making up almost 18% of the population (11.4 million people) and this number predicted to rise to 25% by 2044. The number of those aged over 75 is also increasing, now making up 8% of the population.

With increased numbers of elderly people in the country, demand for long-term health care facilities is on the rise too. According to a report by the Joseph Rowntree Foundation, “to keep pace with demographic pressures over the next 50 years, residential and nursing home places in the UK would need to expand by around 150% and numbers of hours of home care by around 140%”.

Currently, occupied beds cost the NHS around £250 a day, and an estimated 61% of these beds are lost because people are waiting for space in a care or residential home – outlining the need to develop more care homes and relieve the pressure on the NHS (British Property Federation).

All the while, public funding for this area has consistently decreased in recent years. Between 2005 and 2014 there was an 18% reduction in public spending on social care for the elderly, which has left the UK care sector significantly underfunded. This lack of public funding has opened the door to profit-seeking private investors looking to take advantage of the sector’s growing demand.

With over £4.5bn worth of deals in 2014, the care home sector is demonstrating itself as a sustainable property asset class. According to the IPD’s Healthcare Index, healthcare property outperforms all other UK commercial property assets, with total returns increasing 3.4% in 2013-2014, compared with an average increase of just 1.5% across all UK property. Consistently producing robust returns since the index’s launch in 2007, the industry demonstrates a high level of market stability and an increasingly appealing risk-reward ratio.

In January 2015, Knight Frank undertook a property survey of 69 leading investors, developers and lenders in order to understand attitudes towards specialist property investments. When asked “If you are planning to increase your exposure to specialist property, which sector(s) will you be targeting?” 70% of respondents named the UK healthcare market. These results indicate a shift in investors’ focus towards specialist asset classes, contributing to the care sector’s exponential growth in private funding.

With a sustainable demand source and some of the highest returns of any property asset class, the future of care home property investments in the UK is set to strengthen, providing shrewd investors with an income-generating asset, whilst also supporting the future of our population.

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