Equity release plans aid aging society

Besides, equity release requires a stable and mature secondary housing market, which does not exist in China. A huge number of new housing units across the country are lying unsold, compromising the development of a stable secondary property market in the medium term. Building quality (and its impact on valuation) is another major problem in China, as is people's blind preference for new housing. Most importantly, the 70-year leasehold term for property will seriously constrain the value of secondhand houses even if other aspects of the market were to become stable.

There are problems on the demand side too. Chinese people have much the same cultural view as their American and European counterparts, that while it's fine to spend cash from bank accounts or long-term savings like insurance policies, property is something that should be left as inheritance to the next generation. Perhaps this culture will gradually change with the new generations becoming more prosperous and buying their own property. But that is not happening anytime soon.

Moreover, lurking in the background is the fear that the scheme may not be voluntary and will become compulsory. This raises the specter of fraud and greed as banks, like land speculators, force unfair valuation on the weak and defenseless senior citizens, and people think the cash provided cannot be spent on holidays or to buy gifts for their children and grandchildren but to pay only for their own care. This fear in all likelihood is permeating public perception. And it could break one of the key social compacts underpinning China's strict family planning policy - Chinese people choose not to have more children on the promise that the State would care for them in their old age. Being seen as backtracking on that promise is a highly sensitive matter.

Caring for the elderly, however, should not be the sole burden of the younger generation. There must be intergenerational equity, and better-off senior citizens should be expected to contribute a reasonable amount for their own care. As such, a pilot reverse mortgage plan in Shanghai or Beijing may be worth trying, for it could play some part in financing eldercare in urban areas in the long term.

But the plan should not detract from other potential initiatives for financing sustainable community care. Many developed countries already have substantial experience of elderly care and China needs to actively explore all these and its own variations whether its long-term care insurance plans, as seen in Germany, the engagement of non-governmental sectors as in the UK or US, or through limited income taxation on well-off retirees.

Grayson Clarke is an international public finance consultant based in Kuala Lumpur, and Matthias Stepan is a researcher at Vrije University Amsterdam, specializing in the governance of social security systems.