CHONGQING, China -- The Chinese government will launch next month a reverse-mortgage pilot program that will allow senior citizens in four cities to borrow against their homes to pay for living expenses.
Under the policy outlined by China's insurance regulator, insurance companies will be permitted to sell reverse-mortgage products to homeowners aged 60 and older for a period of two years, starting July 1, in the cities of Beijing, Shanghai, Guangzhou and Wuhan. Insurers must have at least 2 billion yuan ($320 million) in capital and fulfill other requirements to enter the market.
Reverse mortgages, already available in such places as Japan, the U.S. and Europe, allow holders to convert a portion of their home equity into cash payments. This sum can be repaid after death through the sale of the property or otherwise.
The move is part of the government's efforts to care for an aging population. Over 200 million Chinese are now 60 or older, representing nearly 15% of the overall population.
The typical mandatory retirement age in the country is 60, and seniors have been pinched by delays in setting up public pension systems. But at around 80%, the home ownership rate for elderly Chinese is particularly high, in part because the government sold public housing on the cheap to citizens in the 1990s.
The market created by the policy could furnish Japanese and other foreign financial institutions with fresh business opportunities, but would-be entrants face considerable obstacles. No insurance company has yet come forward with specific plans for a reverse-mortgage product. As the real estate market cools and housing prices fall, insurers may be wary of offering financial products collateralized with assets at risk of losing value.
At the same time, many older Chinese are intent on leaving wealth to their children and may prove particularly averse to the idea of stripping their homes of equity though reverse mortgages. Some observers are criticizing the government for promoting a system that may place new burdens on seniors instead of increasing expenditures for them.