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Elderly homeowners could be allowed to tap their home equity for income if an idea floated by Executive Councillor Tam Yiu-chung gets the green light.

 Mr Tam, who is also a Legislative Councillor representing the New Territories West, plans to submit a question in Legco next month asking the Government to study the feasibility of reverse mortgages.

 Reverse mortgages, which have long been available in Britain and the United States, allow elderly homeowners to take out a loan using their home as collateral.

 The loan does not have to be repaid until the property is sold, which might be after the homeowner dies. This allows elderly people to stay in their homes while gaining access to the equity in those homes.

 Mr Tam said he would ask the Government to examine in detail the financial considerations involved in introducing reverse mortgages in Hong Kong.

 He said he had informal conversations with bankers and had found few were familiar with the concept.

 However, Hong Kong Association of Banks chairman Raymond Or Ching-fai is familiar with reverse mortgages and is not enthusiastic about them.

 'It's very difficult to fix the price, knowing that property prices in Hong Kong have been volatile,' he said.

 Mr Or also suggested the high local savings rate made such loans largely unnecessary and the multi-generational nature of many local households made such loans difficult to arrange.

 'If there is a need for this sort of product, banks, being usually customer-focused, would be keen to do it,' said Mr Or.

 In fact, reverse mortgages are likely to gain in appeal over coming years, thanks to demographic trends, housing policy and the imminent introduction of the Mandatory Provident Fund.

 The portion of Hong Kong's population aged 65 years or older jumped to 10.9 per cent at the end of last year from 9.3 per cent in 1993.

  As this trend continues, fewer young people will be available to support each elderly person.

 So SAR people will have to become more self-supporting in retirement and reverse mortgages might be one way to facilitate that.

 Government housing policy could also contribute to making reverse mortgages a suitable option.

 In his maiden policy address in October 1997, Chief Executive Tung Chee-hwa announced an ambitious plan to boost Hong Kong's home-ownership rate to 70 per cent of families by 2007.

 The present rate is 53 per cent.

 The recent recession, by causing unemployment to balloon and property prices to drop, has dampened interest in home ownership.

 Only 19.2 per cent of 12,384 households surveyed by the Planning Department last year wanted to buy their own home over the next decade.

 Nevertheless, if the Government does succeed in boosting home ownership, more elderly people will own property on which, theoretically, they could take out a reverse mortgage.

 The income provided by a reverse mortgage could supplement the modest income provided by MPF, said Raymond Tam Wai-man, the executive director of the MPF Authority.

 'The MPF intends to provide only a basic level of retirement protection,' said Mr Tam. 'Someone who contributes only the minimum mandatory contribution will receive on retirement a lump sum sufficient to purchase a lifetime pension of about 40 per cent of his pre-retirement earnings.

 'That may not be sufficient.'  For example, a 75-year-old single woman whose flat is worth $1.2 million might expect to receive an immediate credit line of about $570,000. Or she could choose to receive a monthly advance of about $4,400 for as long as she stayed in the flat, or about $5,700 for the rest of her life, no matter where she lived.

 These calculations are based on a federally insured programme in the United States; a locally designed scheme might carry different terms.

 Speaking as a qualified actuary, Mr Tam said reverse mortgages were feasible and, by fostering the development of the local annuity market, could smooth implementation of the MPF.

Sara French 



House of funds