Reverse mortgages face scepticism in China
Observers warn that reverse mortgages to fund twilight years face an uphill battle for acceptance in a traditional society
The State Council's backing for reverse mortgages to supplement old-age pensions has reignited a debate over whether traditional attitudes are flexible enough for the scheme to gain traction.
The programme has proven popular in other countries such as the United States, and some Chinese cities have already tested the waters. The leadership published a proposal on September 14 to launch pilot scheme, possibly next year, but media outlets have warned the nation might not be ready for it.
Under the "home for pensions" plan, people over 60 can use their homes as collateral in return for a fixed sum every month or for care at a nursing home.
Beijing hopes reverse mortgages can bolster retirees' incomes as the national pension system struggles with the graying population.
The National Council for Social Security Fund said 1.1 trillion yuan (HK$1.38 trillion) was under management at the end of last year, up from 838.6 billion yuan in 2011. But according to Cao Yuanzheng, chief economist at the Bank of China, the pension financing gap will hit 68.2 trillion yuan by 2033, from about 16.5 trillion yuan in 2010.
The Workers' Daily interviewed several elderly about the scheme. They were largely sceptical, saying the bank could become insolvent before they died. In any event, property should be left to one's children, they said. "It's not I alone who can make a decision on the property," one person said. "What would my children think?"
The report said such thinking was common and a new perspective on property ownership needed to be adopted before the policy could get off the ground.
The Guangzhou Daily warned that the tradition of parents leaving a home to their children had helped to lift families out of poverty. "A reverse mortgage may only lead to family disputes," it said.
In the case of wealthier families that might own several homes, parents could live in one property while the others were rented out, rather than apply for a reverse mortgage.
The New Express said the market could help the elderly calculate whether the scheme was cost-effective.
The Express added that as property prices climbed with more people moving to cities, elderly homeowners could earn more from their properties by selling or renting them. They could also arrange to leave a home to someone in exchange for a guarantee of support.
The scheme will also have to be reconciled with China's 70-year limit on property ownership.
"Banks dare not offer mortgages on homes older than 20 years," it said. "Why should we believe that they would give a reverse mortgage to even older ones owned by the elderly?"
The Legal Evening News argued the main point of reverse mortgages was to allow a retiree to live in his own home and receive regular payments for as long as he lived. If he simply sold it, he must calculate whether the money would be enough for all the years ahead.
The China News Service said the policy had come at the wrong time, amid a flood of coverage over the government's pension fund going into the red and the retirement age possibly being extended. The public was therefore likely to question the motives behind the plan.
But it defended the policy as a way to put assets to use. It was the government's responsibility to create possibilities for people to retire in better financial shape, and a house-for-pension scheme that lead to a strong property market should be applauded.
The Shanghai Morning Post called for additional study on how those people without children or property would fit into the overall policy.
The elderly should not rely solely on their property, or children, for care, it said. Instead, the government should provide a basic pension, which it said people had a right to expect.