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Better payouts needed for reverse mortgage scheme for private housing, say analysts

A 2006 scheme from NTUC Income only attracted about 20 home owners, and analysts say better payouts are needed if such a scheme is to attract more owners of private property. 

SINGAPORE: One way to help owners of private housing monetise their property for retirement is to relaunch the reverse mortgage scheme, which was first introduced eight years ago.

Although it did not meet with much success at the time, property analysts say more elderly home owners could be attracted to the scheme if it ensures good payouts.

Under a reverse mortgage, the owner retains the full lease of the flat, but takes a loan against his flat as collateral, and will have to repay the loan with accumulated interest upon termination of the loan, or death.

In a live radio programme on Monday (Sep 1), Prime Minister Lee Hsien Loong said the Government is prepared to study the issue of private housing and how to monetise it for retirees. He noted that one insurance company had earlier experimented with a reverse mortgage scheme, but it was stopped due to low demand.

NTUC Income introduced the scheme in 2006. But three years after it was launched, the scheme had only managed to attract about 20 home owners.

Analysts say owners of private property will consider the amount of payouts on offer before joining such a scheme, and these payout amounts are largely influenced by the value of the property.

Said Mr Nicholas Mak, Executive Director for Research and Consultancy at SLP International Consultants: "For the home-owner to continue receiving the monthly payouts, and for the financial institutions to not suffer financial losses, the value of the property will need to remain fairly stable, or to appreciate. In a situation where the value of the property is declining, then the financial institutions may either reduce the loan term, or pay out less money to the owner, in order not to suffer a financial loss."

Mr Alfred Chia, CEO of SingCapital, believes the popularity of the scheme depends on the payout. "If the payout is not attractive, which was the case in the past, the plan is not going to be attractive. Coupled with the mindset of Asians, where they want to leave something behind for the second generation, this means you're giving up all your assets."