China to pilot reverse mortgage in 4 cities
Print Edition
CHINA will launch a two-year trial in four cities next month to allow retirees to use their homes as collateral for pensions from insurers as the government moves to widen financial support for the rising aging population.
Reverse mortgage, a type of loan in which a homeowner can convert a portion of his property into cash, is common in developed markets.
Starting on July 1, the trial will be unveiled in Shanghai, Beijing, Guangzhou and Wuhan to help Chinese citizens aged 60 and above, the China Insurance Regulatory Commission said in a statement on its website yesterday.
The cities were chosen as they have a more advanced insurance market, a larger aging population and property market.
Insurance firms must have a history of at least five years and a registered capital of no less than 2 billion yuan (US$321 million) to take part in the program, the CIRC said in a separate online statement. They must also submit the application along with a feasibility research report, a plan for the trial, product terms, and other required documents.
The move came as authorities are facing increasing pressure to look after the growing elderly population. Latest official data show the number of people aged above 60 has reached 202.43 million.
In fact, the house-for-pension idea is not new in China. Financial institutions in several cities, including Shanghai, Beijing and Nanjing, have sporadically tested the program since 2003, but all fared badly due to bottlenecks unique to the country.
One key barrier is China’s 70-year leasehold for real estate. Under China’s Real Right Law, private property can be leased for only 70 years. Though related laws also stipulate that the leasehold can be automatically extended, the cost of lease extension is not specified.
Volatility in the property market also adds to financial institutions’ hesitation over the program as they worry a nosedive in housing prices may undermine their interests.
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