House Proud: Elders refuse to buy reverse mortgage
The Economic Times, July 26, 2009, Page 1
Real estate price correction, absence of clear guidance on legal complications, inadequate marketing hit plan’s takeoff
Neha Dewan & Anand Rawani NEW DELHI
REVERSE mortgage, a popular model allowing senior citizens to take money out of their homes, is failing to find an abode in India. Senior bank officials that SundayET spoke with have confirmed that the product has failed to find takers during the last two and half years of its existence in India.
Till now, less than 500 applicants have availed this loan in India since its inception in 2007, a senior bank official, who did not wish to be identified, said.
The reasons for the model not taking off in India are manifold. From an emotional attachment with one’s house to real estate price correction; from an absence of clear guidance against legal complications to inadequate marketing, the plan has been unable to meet the expectations of financial institutions.
Reverse mortgage is a plan through which senior citizens can avail loans from either banks or other financial institutions by mortgaging one’s home.
If a senior owns a house and has a mortgage on the house, he might get a reverse mortgage to pay off the existing loan and then have some money left over to take care of his expenses for the rest of his life. The homeowner could get that as a lump sum or a line of credit, and wouldn’t have to pay it back until he moved or died and the house was sold. The banks can sell off the property to realise the loan amount. However, there is a provision that the legal heirs can acquire the property back by paying off the loan to the bank.
Dewan Housing, which is one of the largest housing finance companies, has been able to sell only 4-5 reverse mortgage loans during the last two years. Two large financial institutions, HDFC, which incidentally is one of the largest home loan lenders in the country, and Kotak Mahindra do not have reverse mortgage in their portfolios.
In fact, several other players in the segment are also facing difficulties in selling reverse mortgage products. Says Sujan Sinha, senior V-P and head of retail liabilities, Axis Bank, “The product has not done well. In India, you can count the number of cases of reverse mortgage on your finger tips.”
There are some very basic reasons that have worked against this product which has taken off rather well in international markets. The psyche of Indians does not make them comfortable with the idea of selling their home. The tradition of passing down one’s property over generations is an age-old one and is unlikely to change soon. Inheritance of property too is a problem. According to Kamlesh Rao, senior V-P at Kotak Mahindra Bank, the problem lies in the fact that in India the son inherits the property of his father but is reluctant to inherit the loan amount.
“Such a model may not work in our country due to its very nature. One’s shelter is not meant to be sold,” reiterates Mr Sinha.
No protection for lending cos
ANOTHER senior bank official said that there are several reasons behind the failure of this product. “There is no clarity on possession of the property. If a person goes for reverse mortgage at the age of 60 for 15 years but he survives, the financial institution does not have a clear guidance on how to acquire that home. Also from the client’s side, it will be difficult to pay off the loan if he wishes to live in the same house.”
He further added that there is no protection for lending institutions in case of legal complications. In more developed nations, it is the insurance companies that come to the rescue of finical institutions.
However, not all have written it off. K Raghuraman, director of Andhra Bank, says the product has suffered due to lack of a sound marketing strategy. “This is a fantastic product. This would be the best pension plan. The interesting part is that the property is not sold today but the client gets today’s valuation,” he says.
The Economic Times, July 26, 2009, Page 1
Real estate price correction, absence of clear guidance on legal complications, inadequate marketing hit plan’s takeoff
Neha Dewan & Anand Rawani NEW DELHI
REVERSE mortgage, a popular model allowing senior citizens to take money out of their homes, is failing to find an abode in India. Senior bank officials that SundayET spoke with have confirmed that the product has failed to find takers during the last two and half years of its existence in India.
Till now, less than 500 applicants have availed this loan in India since its inception in 2007, a senior bank official, who did not wish to be identified, said.
The reasons for the model not taking off in India are manifold. From an emotional attachment with one’s house to real estate price correction; from an absence of clear guidance against legal complications to inadequate marketing, the plan has been unable to meet the expectations of financial institutions.
Reverse mortgage is a plan through which senior citizens can avail loans from either banks or other financial institutions by mortgaging one’s home.
If a senior owns a house and has a mortgage on the house, he might get a reverse mortgage to pay off the existing loan and then have some money left over to take care of his expenses for the rest of his life. The homeowner could get that as a lump sum or a line of credit, and wouldn’t have to pay it back until he moved or died and the house was sold. The banks can sell off the property to realise the loan amount. However, there is a provision that the legal heirs can acquire the property back by paying off the loan to the bank.
Dewan Housing, which is one of the largest housing finance companies, has been able to sell only 4-5 reverse mortgage loans during the last two years. Two large financial institutions, HDFC, which incidentally is one of the largest home loan lenders in the country, and Kotak Mahindra do not have reverse mortgage in their portfolios.
In fact, several other players in the segment are also facing difficulties in selling reverse mortgage products. Says Sujan Sinha, senior V-P and head of retail liabilities, Axis Bank, “The product has not done well. In India, you can count the number of cases of reverse mortgage on your finger tips.”
There are some very basic reasons that have worked against this product which has taken off rather well in international markets. The psyche of Indians does not make them comfortable with the idea of selling their home. The tradition of passing down one’s property over generations is an age-old one and is unlikely to change soon. Inheritance of property too is a problem. According to Kamlesh Rao, senior V-P at Kotak Mahindra Bank, the problem lies in the fact that in India the son inherits the property of his father but is reluctant to inherit the loan amount.
“Such a model may not work in our country due to its very nature. One’s shelter is not meant to be sold,” reiterates Mr Sinha.
No protection for lending cos
ANOTHER senior bank official said that there are several reasons behind the failure of this product. “There is no clarity on possession of the property. If a person goes for reverse mortgage at the age of 60 for 15 years but he survives, the financial institution does not have a clear guidance on how to acquire that home. Also from the client’s side, it will be difficult to pay off the loan if he wishes to live in the same house.”
He further added that there is no protection for lending institutions in case of legal complications. In more developed nations, it is the insurance companies that come to the rescue of finical institutions.
However, not all have written it off. K Raghuraman, director of Andhra Bank, says the product has suffered due to lack of a sound marketing strategy. “This is a fantastic product. This would be the best pension plan. The interesting part is that the property is not sold today but the client gets today’s valuation,” he says.
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