Financial tool aims to free up cash for seniors

The central government plans to launch a pilot program that will offer reverse mortgages to the elderly next year.

Experts and insiders said this financial tool may give some elderly people a higher income, but potential problems include the 70-year leasehold on property and the widely accepted cultural norm that real estate should be inherited by the owner's offspring.

A statement on the website of the Ministry of Civil Affairs on Monday said that the pilot program, if successful, will help senior citizens with their financial difficulties by enabling them to make better use of their housing resources, and it will also expand the business opportunities of insurance companies and financial institutions.

Reverse mortgages are widely used overseas, but the concept is in its infancy on the Chinese mainland, the statement added.

A reverse mortgage allows a homeowner to convert part of a home's equity into cash. However, reverse mortgages do not require repayments on the line of credit.

The State Council, or China's Cabinet, said on Friday that the government will start a reverse-mortgage pilot program. Detailed regulations will be released in the first quarter of next year, it said.

"It is definitely a good selling point to include supportive services for the elderly in financial products," said Zhang Wan, a wealth manager at a branch of China Citic Bank in Shanghai. Citic Bank began issuing a special card in April last year that allows users to enjoy services that include reverse mortgages, investing, and making reservations for hospitals, she said.

"The card has been very popular among elderly clients, but none have applied for a reverse mortgage so far in our branch," she said. Those who did ask about the service either were not qualified because they were not the only owners of their properties, or they were reluctant to apply for fear that their heirs would complain.

The 70-year lease on commercial housing in China also makes it more difficult for banks to evaluate the value of a private property, she said.

Guo Ping, a researcher at the China Research Center on Aging in Beijing, said China still lacks two necessary conditions — stable housing prices and sound regulations — for reverse mortgages to thrive.

"It's hard to predict housing prices in the future because on the one hand, property prices keep rising, while on the other, the government introduced many measures to cool down the property market," he said.

The elderly would be more likely to break their contracts if housing prices grow rapidly after banks underestimate the value of their properties, he said. An undervalued property reduces the line of credit — and the cash — the homeowner would otherwise get.

Banks' enthusiasm for reverse mortgage services will cool if government policies bring down housing prices, he added.

Without clear and sound regulations on reverse mortgages, most insurance companies and banks will "wait and see" at the current stage, he added.

Bo Ying, an operation manager of Zhongda Hengji, a real estate company, said elderly people without children and the elderly whose children have immigrated overseas or those who feel no moral burden to pass their property on to their offspring are more inclined to seek a reverse mortgage, which would enable them to get a secure income apart from their pensions.

Zhang Shuxia, president of Beijing Sunshine International Care House, said she will pay close attention to how the policy will be carried out.

"However, as far as I know, very few old people living in nursing homes would like to mortgage their houses to banks," Zhang said.

"Many of them prefer renting out their homes and spend the rent for their nursing-home fees, which secures more funds for themselves and maintains the ownership of their properties so that their children can inherit the property when they pass away," she added.

An online survey revealed on Monday that the majority of Chinese netizens are not interested in reverse mortgages as a way to support themselves when they get old.

About 67 percent of about 24,000 respondents said they cannot accept the idea of receiving financial support in their old age through a reverse mortgage as they believe their properties should be passed on to their children, according to a survey on Sina.com.cn, a leading news portal in China.

About 27 percent of the respondents said they approve of reverse mortgages as a means to access extra funds rather than simply relying on savings and a pension, while the rest of the respondents said they do not care about reverse mortgages.

Wu Yiyao in Shanghai contributed to this story.