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Cover Stories Series 2014> Balancing out Pensions> Archive
UPDATED: October 24, 2013 NO. 43 OCTOBER 24, 2013
Reverse Mortgages
Home deed buyback scheme to help meet China's elderly care needs
By Yin Pumin

PEACEFUL LIFE: Senior residents play mahjong at a nursing home in Hefei, Anhui Province, on October 10 (DU YU)

Several cities, including Beijing, Shanghai, Nanjing in Jiangsu Province and Hangzhou in Zhejiang Province, have been testing the program since 2003, but all had fared badly due to obstacles unique to China's current national condition.

According to Tang Jun, Secretary General of the CASS' Social Policy Research Center, one such roadblock is China's 70-year lease policy on real estate.

As the Property Law of China, private property can only be leased for a maximum of 70 years. Though laws also stipulate that the lease can be automatically extended, the cost of lease extension is not specified.

"The 70-year lease on commercial housing makes it more difficult for insurance companies and banks to evaluate the value of private property," Tang said.

The volatility of the property market also adds to financial institutions' hesitation over the program as they worry that a possible drop in housing prices may undermine their interests, Tang added.

Guo Ping, a researcher with the China Research Center on Aging, agreed. He said that stable housing prices and well-implemented regulations are two things necessary for reverse mortgages to succeed.

"It's hard to predict housing prices in the future because on the one hand, property prices keep rising, while on the other, the government has introduced measures to cool down the property market," he said.

According to Guo, the elderly would be more likely to break their contracts if housing prices grew rapidly after banks underestimated the value of their properties. This is because an undervalued property reduces the payout the homeowner would otherwise get.

The enthusiasm from insurance companies and banks over reverse mortgage services will also taper off if government policies bring housing prices down, Guo warned. With a lack of clear regulations on reverse mortgages, most insurance companies and banks are reluctant to get involved right now, he added.

"The idea also challenges the traditional Chinese beliefs that parents will rely on their children to take care of them and leave their property, especially their houses, to them as inheritance," said Zhang Wan, a wealth manager at a branch of China CITIC Bank in Shanghai.

In April last year, China CITIC Bank began issuing a card that allows users to enjoy services that include reverse mortgages, investment and making appointments with doctors.

"The card has been very popular among our elderly clients, but none have applied for a reverse mortgage at our branch so far," Zhang said. Those who did inquire about the service were either not qualified because they were not the only owners of their properties, or were reluctant to apply for fear that the heirs to their property would complain.

Analysts have commented that the reverse mortgage scheme is mainly aimed at serving the elderly whose children are deceased or who otherwise do not have heirs.

Du Peng, Director of the Institute of Gerontology at the Renmin University of China in Beijing, suggested that the program should only be thought of as a financial alternative in facilitating elderly care, instead of a major pillar of support in the nation's elderly care system.

"What the government should do is to reassure the public that they will be able to live a decent senior life with sound and sustainable elderly care mechanisms and advanced facilities in place to support them," Du said.

Ma Li, a counselor at the State Council, said that the country should build support mechanisms for retirees that are based on home care and supplemented with assistance from communities. Meanwhile, facilities and services should be greatly enhanced, with more efforts needed to expand the sector's workforce.

Nurse shortage

The State Council document also announced that the government is to change its current single-handed approach and encourage foreign and private investment in elderly care services to meet the growing demand from the country's aging population.

"Previously China's elderly care services only dealt with food and clothing. A more modern vision of services focuses on integrated care," said Wang Zhenyao, Dean of the China Philanthropy Research Institute at Beijing Normal University.

The State Council said that the country aims to build an improved system covering day-to-day care, medical care, psychological counseling and emergency aid by 2020.

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