China Pushes Reverse Mortgages as Demographic Peril Looms

As China faces the familiar demographic math problem causing economic headaches in countries around the world, the nation’s government has decided to expand its reverse mortgage program.

The China Banking Regulatory Commission last week made reverse mortgages available to all homeowners aged 60 and older, according to a report from Sixth Tone, an online publication that covers Chinese policy and culture.

Initially rolled out in June 2014 as pilot programs to residents of Beijing, Shanghai, and Guangzhou, the program — open to homeowners aged 60 and older — has steadily expanded into newer markets even though only 132 people have actually taken the government up on the offer.

In addition, according to Sixth Tone, there’s only one company that offers reverse mortgages in China, which take the form of a kind of insurance policy in which the homeowners receive regular payments for the remainder of their lives — and then surrender their properties upon death.

Despite the lack of participation so far, the Chinese government has decided to gamble on the products in response to an undeniable demographic wave sweeping the country: By 2022, the publication noted, the number of people receiving government pension funds will start growing 3% than the population of younger people paying into it, with multiple provinces predicting that they’ll soon be unable to sustain the retirement programs.

Still, despite the clear need for some kind of retirement relief, older Chinese homeowners tend to be wary of reverse mortgages, particularly if they have children. A 2013 survey found that the only older Shanghai residents who showed interest in a reverse mortgage were either childless or estranged from their sons and daughters.

“For respondents who reported positive relations with their children, the notion of holding onto a property as a legacy for the next generation made the reverse mortgage a hard sell,” Sixth Tone noted.

Reverse mortgages have also suffered from a negative reputation stemming largely from a group of scammers that set up some seniors with deliberately untenable loan structures.

“When people talk about mortgaging property for pensions, they might think of reverse mortgages as risky, time-consuming, and complicated,” economist Chai Xiaowu told the publication.

China’s situation contrasts with other countries that have seen explosive growth in home equity conversion products — including the United Kingdom and Canada, where new lenders have entered the marketplace in the last two years to potentially cash in on favorable demographic trends in those countries.

Since January, for instance, Canadian homeowners have two competing reverse mortgage firms from which to choose, after Equitable Bank launched a competing product to a market that had long been dominated by HomeEquity Bank. In turn, HomeEquity has tweaked its advertising strategy to offer a more emotional, lighthearted pitch to Canadian seniors who might want to age in place.

But China’s lack of competition only serves to compound a difficult sell.

“It’s like inviting people to a meal: If you prepare one dish, the only choice people have is to eat or not eat,” Chai told Sixth Tone. “But if you prepare a buffet with 30 dishes for people to choose from, the result will be much better.”

Written by Alex Spanko

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