Mainland's cemetery business boom

People nowadays can't even afford to die, as some tomb prices in Beijing cost as much as 350,000 yuan per sq m. 'Building homes for the dead' offers so high profit margins that many companies are rushing to this sector.

While most mainland people feel vulnerable to surging home prices these days, they also realize that it is also becoming unaffordable to die these days - due to the rocketing tomb and cemetery prices.

But some like Wang Yi, 52, is proud of her foresight.

In 2007, Wang, supported by her husband, decided to purchase graveyard sites for her parents-in-law, her parents, and themselves despite all of them having good health.

After making several personal field trips, Wang eventually spotted a large private cemetery located in Suzhou, which has mountains in the background and faces the Taihu Lake - deemed by Wang as having "very good fung shui".

Without much ado, Wang bought a "standard-sized" graveyard site for her parents - a two-square-meter tumulus that is designed for a pair of cinerary caskets, at a cost of 25,000 yuan. She bought another bigger graveyard site to rest Wang's parents-in-law, including her husband, who is the only son in the parent's family, and herself. The investment cost the couple another 70,000 yuan.

"The prices of graves in the same cemetery have at least doubled these days," Wang told China Daily five years after she sealed the deal. "Good locations have also become scarce after years of development," she added.

The doubling of grave prices and scarcity of good locations were confirmed by Andy Chui, chairman of Sage International Group, a Hong Kong-listed company which is involved in the operation of the cemetery and funeral services in both Hong Kong and the mainland.

"Tomb prices are now costing an average of 25,000 yuan per square meter in Suzhou. In Shanghai, it even reaches 50,000 yuan per square meter," said Chui.

According to data released by the mainland property advisory firm SouFun Holdings Ltd in July, average home prices in Suzhou and Shanghai averaged 11,450 yuan and 23,113 yuan per square meter, respectively.

Even in Shenzhen where residential properties are the most expensive on the mainland, the 24,550 yuan per square meter average selling prices are much lower than the average tomb prices in Suzhou.

According to a Xinhua news report in April, some tombs in Beijing were priced 350,000 yuan per square meter, while the prices of graveyard sites in a Nanjing cemetery were 20 times that of the residential homes sold per square meter in the city.

Cemetery developments in China mushroomed during the years along with the booming residential construction, which underwent tremendous expansion in both the quantities and selling prices given the buoyant demand. The increasing aging population on the mainland has resulted in a booming demand for "good places to rest" after death.

Data from the National Bureau of Statistics showed that people aged 60 or above were about 178 million on the mainland last year, accounting for approximately 13 percent of the population. With the average lifespan reaching 75 years old, the elderly is expected to account for more than 30 percent of the population by 2042.

Howard Wong, head of research from Kingsway Financial Services Group in Hong Kong, attributed the hotspot cemetery market to the explicit demand in China based on the traditional concept of being "buried and to rest" in peace. The boom is also assisted by the fast growing wealth among the population.

"Chinese people are willing to spend money on funerals and tombs. It is hard to say if the current prices are too high given that the demands are even higher," said Wong.

The lucrative business has attracted numerous companies to plunge into cemetery developments, including those which intentionally switch their business to this sector.

The aforementioned Sage International, formerly known as Info Communication Ltd which only organized exhibitions events, started acquiring cemetery assets and entered into the cemetery business in 2011.

Chairman Chui describes the business as building homes for the dead which is "a more profitable one" compared with residential development on the mainland, with the gross margin reaching over 40 percent in the industry.

However, a research report by SBI E2-Capital last year indicated that gross profit margin of Sage International "could be between 60 percent and 80 percent" in line with the high end segment of the industry.

Other Hong Kong-listed companies, including China Boon Holdings Ltd and Hong Kong Life Group, which were both technology companies, have also joined forces to explore the sure-win cemetery-development business on the mainland in recent years.

According to an annual report released in June, China Boon's gross profit margin for the full-year ended March 31, 2012 reached 74 percent compared with 58.4 percent registered a year earlier.

Hong Kong Life's gross profit margin for the three months ended March 31, 2012 has surged to 67.6 percent, the company told the city's stock exchange in May.

The cemetery sector's gross profit margin is much higher compared with the average gross profit margin of 39.38 percent among mainland developers in 2011, according to FinChina data.

Not only have the tomb prices per square meter surpassed residential prices in respective cities, at the same time, unlike the 70 years' property ownership in China, most of these private cemetery developers only signed a 20-year contract with the buyers.

"In theory, the owner of the tomb needs to renew the contract based on market prices at that time when current contract expires 20 years later. If they don't, we will clear up his tomb and bury the cinerary casket in other places," said Chui.

However, not everyone has fully realized the 20-year-ownership clause in the contract with the cemetery developers, including Wang who purchased the two graveyard sites five years ago.

While advised to read the certificates thoroughly, Wang just realized that her right on both the tombs would also last 20 years only.

Speaking in dismay, Wang said if the salesperson had stated the restrictions to her clearly before she signed the contract, she would probably have had second thoughts about the deal.

"It would become a big burden to my prosperity to renew the contracts in the future, which seems endless to me," Wang said.