China Promotes Reverse Mortgages
Reverse mortgages have been an option since 2014, but with a participation rate near zero and the mounting needs of an aging population, the government is moving to once-again promote the program.
According to a release from the China Banking and Insurance Regulatory Commission, the scheme is meant to encourage seniors aged 60 years or above to take out money against built up home equity. The program gives senior citizens access to private assets in the form of liquid funds in return for the equivalent proceeds on the sale of their property after they’ve passed away.
A trial program was first introduced in cities such as Beijing, Shanghai, and Guangzhou four years ago and has since expanded, despite low participation. With pensions coming under increased pressure to support an aging population, the government has been supportive of alternate forms of retirement support.
According to information released in late 2017, China has 241 million people aged 60 or above – the equivalent of 17% of the country’s total population. And a recent report from the Chinese Academy of Social Sciences noted that the number of eligible retirees will be growing 3% faster than pension fund contributors by 2022. The report also warned that over a dozen provinces in the country will be unable to meet demand over the next five years. Already, the northeastern province of Heilongjiang has been forced to borrow heavily from the central government’s social security fund.
With China having one of the world’s highest rates of home ownership and wealth being concentrated in home equity, property assets seemed like a potential avenue of retirement support. The reverse mortgage program was initially proposed in 2013, with eligibility extending to anyone 60 or above, with fully legal ownership of a property. However, as of May of 2018, only one insurance company offers reverse mortgage services, and only 132 people have taken out a policy.
According to a 2013 survey of 2,800 individuals in Shanghai by Qu Xiaomin, a researcher at the East China University of Political Science and Law, only 31% of respondents saw the policy as an acceptable way to pay for pensions. Of that amount, only a small number – those without children or with strained familial relations – showed any interest in the idea.
While a strong cultural concept of passing on property to the following generation is one obstacle to the program’s growth, many people are also simply unaware of the option or the details. Many individuals view the concept as risky, or as a possible scam. Many analysts suggest that increasing awareness, offering a more diverse range of policies, or introducing a government-designed standard offering may be ways to increase the scheme’s popularity.
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