This measure by the China Banking and Insurance Regulatory Commission wants to help the elderly enjoy their golden years in comfort.
Due to the world’s fastest-ageing population and a pension system riddled by shortfalls, China has turned to the polict of reverse mortgages to help out its retirees.
Outside of major cities like Beijing and Shanghai, the country’s real estate market has been moribound,due to years of spiralling real estate values driving home ownership beyond the reach of most people. In Shenzen, the southern city with an official population of 12.5 mn, and more than 4 mn housing units — only 12,804 changed hands in the first half of 2018. Putting this into perspective, it would take 163 years at this rate to sell off existing units. Similarly, only 2,500 were sold in the coastal city of Xiamen, which has a population of 4 mn.
At the same time, China also has an impending pension crisis.
State-run pension plans have faced face large and growing shortfalls, overall estimated to be almost US$100 bn. Some provinces have either run out of money to service their pensions, or soon will. Government subsidies to the social-insurance fund are budgeted to rise by 35% in 2018. Still for many, Chinese pensions are pitifully small. One estimate averaged them at being about only $204 per year.
Hence, under these conditions, reverse mortages—which offer loans to the elderely to allow them to draw home equity make a lot of sense. With an estimated $175,328 in home equity, a Chinese retiree will have an average of 15 years ahead. It would also be possible to improve his quality of life.
As the ranks of Chinese elderly grow and caring for them gets costlier, then, reverse mortgages could certainly offer a valid solution to the problem. It would also be reasonable to limit the future payout of a reverse mortgage and allowing the homes to be sold after a borrower’s death.
Such safeguards can go a long way in helping out China’s retirees without adding extra financial risk.