Reverse Mortgages for Elderly HDB Flat Owners

Er Dr Lee Bee Wah asked the Minister for National Development (a) if he can update the House on the outcome of HDB's study on the option of reverse mortgages for elderly HDB flat owners; and (b) how will the scheme work out for elderly flat owners.

Madam, a reverse mortgage is a loan taken up by a property owner using his property as collateral. However, unlike a traditional mortgage, the borrower need not make any cash repayment during the loan tenure. Instead, he only needs to repay the loan with accumulated interest upon termination or upon death, typically, from the sales proceeds. A reverse mortgage thus allows the property owner to unlock some equity while retaining the financial upside from any appreciation in property value in a rising market.

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However, reverse mortgage has its risks. First, as it does not require periodic cash repayments, the loan balance grows with interest. Second, the owner has to bear property risks. If the market value of the property becomes less than the outstanding loan, the owner may have to sell the property to repay the loan.

In 2006, the National Trades Union Congress (NTUC) Income offered reverse mortgage for Housing and Development Board (HDB) flats. Only 24 households signed up and NTUC Income has since stopped offering the product.

Nevertheless, the Ministry of National Development (MND) is revisiting the subject. We are studying several countries with established reverse mortgage plans, and to learn from their experiences. But we note that these countries are also finding their take-up rates to be quite low. As the reverse mortgage is a complex financial product, we need to study it carefully, consult our people, before we decide whether to introduce it as an additional option for our seniors.

I thank the Minister for his update on the developments. Certainly, today, we have got the Lease Buyback Scheme (LBS) already in place. What is MND's strategy in terms of pursuing both the LBS as well as reverse mortgage? To ordinary citizens, I do not think they would be able to differentiate between the two. And is there a concerted strategy that we are embarking on both paths?

Indeed, the two products are different and we are not embarking on both. We are only right now offering LBS. But we are studying reverse mortgage just to see whether it will be viable, although it has been tried before, but whether between 2006 and now, have there been changes in the business model that we can learn from and where we may find that the new product offering might be suitable for some clientele.

Our objective is to offer a range of options. So, it is not wrong if we were to decide to offer both. Then individuals would have options to choose which one will suit them better. For some, they may find LBS attractive; others may find reverse mortgage more suitable.

The key is informed decision making which means very close hand-holding and, if we were to offer such products, our staff would have to be well-trained so that they can conduct individual counselling. Get down to specifics: your flat, at what address, what is the indicative market price, how much proceeds can you get if you were to do LBS; if you do reverse mortgage, what does it mean and what are the implications? These are, as I said before long-term commitments, 30 or 40 years down the road. We want to make sure that people make

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up their minds with all the information at hand.

Mdm Speaker, I think reverse mortgage is just one of the various options available for residents to choose from and it has been in discussion recently. I would like to ask the Minister, in the Ministry's study of other countries, what are the challenges that you have come across? Perhaps, the Minister can share with the House.

Usually, I try to reply fully to Er Dr Lee Bee Wah. But on this instance, I cannot because this study is still ongoing.

It is work in progress and the preliminary feedback to me is, that even in many of these countries or cities, the take-up rates are really low. In other words, not particularly encouraging. We are not aware of any country where reverse mortgage is extensively taken up or has seen wide usage.

I am not giving up and we want to continue to explore. But I do not want to raise hopes, too, that we will definitely do reverse mortgage. The fact that take-up rates are low, not only in Singapore but elsewhere, must suggest that the providers and the people probably find it unattractive. In fact, today, there are no regulatory impediments against any of our financial institutions from offering reverse mortgage for private properties, for example. They can offer it. In fact, a couple offered it a few years back and they also faced the same problems as what NTUC Income did. They then stopped offering the product.

So, obviously, the market is probably not ripe yet. There are many ways to interpret it. I tend to interpret it positively to mean that the owners, our seniors, have additional savings or I would like to believe that many families have good children. And the good children are providing monthly allowances to their parents which I think will be lovely. And, therefore, the parents do not see a need for wanting to exercise these various monetisation options.

As I said in this House a couple of sessions ago, to me, the best outcome is the parents move in at the invitation of their kids, to be with the kids and then, whilst they still own their own flat, rent it out, whole flat and collect easily more than $1,000 or $1,500 per month in rental. That is the best outcome for most, if not all Singaporean families.