Beyond fruit money: how elderly might tap wealth in their homes
Paggie Leung and Gary Cheung
Retiree Mr Leung sits on a small fortune, but he cannot get at it. Instead he depends on HK$1,000 a month from the public purse and help from his daughter.
It is people like him that proponents of reverse mortgages - which let elderly people borrow against the value of their home - have in mind.
Leung, 71, who would give only his family name, says he would not mind borrowing against his HK$3.5 million flat, if he could, to help support himself and his wife for the rest of their lives.
He would be a potential client for a bank or other financial institution that introduced reverse mortgages - an idea that has come under renewed scrutiny in Hong Kong as the population ages.
The couple's main sources of income are a monthly contribution from their daughter and the HK$1,000-a-month old age allowance known as 'fruit money'.
Leung, who lives with his wife in the two-bedroom flat in Mei Foo, said: 'My daughter has her own property already. If I could get a reverse mortgage to fund our living expenses, we wouldn't need to rely on our daughter's payment, which would ease her financial burden too.'
Reverse mortgages allow an elderly homeowner to borrow cash, either in monthly instalments or as a lump sum, against the equity in the property. The loan is repayable only when the owner dies, sells the property or leaves it permanently.
Ng Leung-sing, a Hong Kong deputy to the National People's Congress, proposed to Chief Executive Donald Tsang Yam-kuen during a policy address consultation session last week that the government team up with banks to set up such a scheme, which is available in many Western countries.
'I told the chief executive the government should set up a council or committee to study the details of a reverse mortgage scheme - such as the extent of the government's guarantee under the scheme for a property owned by an elderly person,' Ng said.
Ng, who is chairman of estate agency and property management firm Bank of China (Hong Kong) Trustees, said Tsang considered his proposal constructive.
The idea has support from several quarters, public and private.
A top government official said in a confidential briefing recently that reverse mortgages were 'something good and should be done' in Hong Kong, and the government would examine the topic seriously.
Think tanks including the Bauhinia Foundation Research Centre and the Business and Professionals Federation of Hong Kong also back the introduction of reverse mortgages to help ease the financial burden of elderly retirees.
And the Hong Kong Mortgage Corporation is conducting a feasibility study after concluding five years ago there would not be much demand for reverse mortgages.
Its chief executive, James Lau, said reverse mortgages were a complex financial product, which made launching them a challenge, especially when the users were elderly.
'In our traditional culture, the Chinese usually want to leave their property to their children, and they tend to think that bricks can better preserve value than money,' Lau said. 'They may feel uncomfortable about taking out a mortgage loan. Some elderly people might find it difficult to understand. Therefore, the pre-sale explanation must be done properly.'
Overseas, Lau said, the popularity and success of such schemes varied. In the United States, homeowners aged 62 or above can apply for a reverse mortgage based on the property's appraised value.
US firm Omni Reverse Mortgage says with a federally insured home equity conversion mortgage, the loan amount - usually between 50 per cent and 70 per cent of the home's value - is capped at US$625,000.
In an example cited by the firm, Mary is the 70-year-old owner of a three-bedroom house near Fort Lauderdale, Florida, that is worth about US$250,000. With the federally backed reverse mortgage, she could receive a lump sum or a line of credit of US$138,536; alternatively, she could get US$896 a month for as long as she lives in her home.
Travis Newman, a vice-president of the company, said he believed a reverse mortgage product would be well suited for Hong Kong. But Dr Raymond So Wai-man, dean of the school of business at Hang Seng Management College, said few Hongkongers would be interested, because they would get less than by selling the flat directly.
'For elderly people who live in old properties located in, for example, tenement buildings in Hong Kong, the value of their properties is not high. If the market price of a flat is around half a million, that means the homeowner may get only HK$1,000 or a few hundred dollars a month, which is not very attractive,' So said.
It is also less attractive for local banks and financial institutions to offer such products because, unlike in the West, the owner of a property does not usually own the land as well. Lenders could generate more profit if they had a choice to sell the property or redevelop it, So said.
He said reverse mortgages might be more popular in Hong Kong in a few decades' time, when more elderly people might not receive support from their children.
A report from the Business and Professionals Federation in 2008 said there were about 400,000 homeowners in 2006 aged over 50 and free of mortgage debt.
Of those, 120,000 did not live with their children, and this figure was expected to grow to 260,000 by 2036.
Union employee James Tang Cheung-sing, who will retire in about four years, said: 'The product may suit those without any kids or whose children ignore them. Otherwise, most parents want to leave a flat for their children.
'I have a son and a daughter, and we have a good relationship. They will care for me, so I don't need to consider it.'
Many Hongkongers expect support in old age from their children
Mortgage-free homeowners over 50 in 2006 who did not live with their children: 120,000