Reverse mortgages give Shanghai pensioners a leg-up
After the botched roll-out of the free-trade zone, the city's authorities have finally introduced a reform that delivers
Shanghai has started to offer reverse mortgages following the State Council's decision to back a trial programme of the financing arrangement.
The Bank of Shanghai began to offer the service to elderly residents. Under the scheme, people over 60 can use their homes as collateral in return for a fixed sum every month or for care at a nursing home.
The move should help the city better manage its ageing population. According to local government figures, the number of residents aged over 60 last year rose 5.6 per cent to 3.67 million, compared to the 2011 figure. They now make up more than a quarter of Shanghai's total population.
The Shanghai Research Centre on Ageing predicted the city would have one million additional elderly by 2015.
The scheme should also help bolster retirees' incomes as the national pension system struggles with a financing gap that by one economist's estimate will hit 68.2 trillion yuan (HK$86.3 trillion) by 2033, from 16.5 trillion yuan in 2010.
According to officials with knowledge of the municipal government's policymaking, the city's labour and housing authorities began studying the feasibility of reverse-mortgages several years ago. But it was not until the central government recently issued guidelines that Shanghai began to move forward with the idea.
The Bank of Shanghai said it would offer a range of reverse-mortgage products to meet the requirements of different elderly clients.
Due to the family planning policy, many elderly only have a single child to care for them. If that isn't feasible, the elderly must consider nursing homes, but the city has a shortage of beds. Municipal authorities last year increased the number of beds at elderly care facilities by 3.3 per cent to 105,215 last year, but most of the beds are in the outskirts of the city.
But elderly people dislike moving to outer districts, which they feel lack facilities and good hospitals and doctors.
In Shanghai, the rising cost of living makes it harder for the elderly to stretch their pensions to make ends meet.
A retired worker in Shanghai receives an average monthly pension of about 2,000 yuan and local media have estimated the average cost for daily necessities in the city could amount to about 2,000 yuan a month.
It's unknown how many Shanghai residents would eventually take reverse mortgages. Taking advantage of the surging home prices to improve quality of life appears to be an ideal solution. For those who chose to remain in their homes, the reverse mortgage income could allow them to hire a helper to care them.
It is too early to say how many in Shanghai would be willing to take out the mortgage, but a study by Essence Securities predicted that - nationwide - property worth 130 billion yuan was suitable for the scheme, opening a potentially mammoth market for banks.
Shanghai envisions transforming itself into a global financial centre by 2020, but officials rarely say how prosperity will bring tangible benefits to ordinary people.
Residents have reason to be pessimistic. The city's much-touted pledge of becoming a global financial centre with its free-trade zone sputtered on launch, but part of that might be attributed to rumoured resistance among some in the central government.
But reforms such as reverse mortgages can bring a real benefit to residents.
Such liberalisations will in pump new money into the economy; for example, with their augmented pension payments, elderly residents will have more disposable income to spend.