How the elderly can benefit from a reverse mortgage

September 12, 2015 08:06
Participants in the Financial Planning Conference 2015 organised by the Institute of Financial Planners of Hong Kong. Photo: HKEJ

More than 500 professionals and financial planning practitioners took part in the Financial Planning Conference 2015 held on Sept. 1.

The conference theme was “Positioned for Success”, and 15 speakers explored topics including the aging population and heritage, how to transform Hong Kong into a global asset management hub, new perspectives in retirement planning and so on.

Cynthia Hui Wai-yee, executive director of the Mandatory Provident Fund Schemes Authority, disclosed that the MPF had total assets of HK$620.1 billion (US$80 billion) at the end of June, and voluntary contributions reached an annual HK$5.6 billion, up 23 percent from the year before.

The fund posted an annual return of 4.5 percent, far above the 1.7 percent inflation rate, she said.

Choi Fung-yee, senior director of investment products at the Securities and Futures Commission, said the regulator is speeding up approval of funds and working on mutual recognition of funds between Hong Kong and the mainland, in an effort to facilitate Hong Kong’s goal of becoming a major center for asset management.

Michael Chan Yue-kwong, chairman of Café de Coral Holdings Ltd. (00341.HK), said Japanese family businesses are the most successful worldwide.

Factors that lead to failure in business succession include mere empty talk, no planning or a lack of communication and sensible arrangements, Chan said.

Any sensational solution always creates a lot of issues, he said.

Raymond Li Ling-cheung, chief executive of the Hong Kong Mortgage Corporation, suggested a reverse mortgage as a good way of planning for retirement.

First, it lasts for a lifetime.

The borrower remains the owner of the property and can continue to stay in the property for the rest of his or her life.

Second, a reverse mortgage can help hedge against inflation and lock in the property's price.

The owner can benefit from rising property prices, and be immune from any price decline.

So the reverse mortgage is similar to a put option, which hedges against the risk of a price decline for rest of the owner's life.

Third, the program can offer a steady income for the elderly.

Li suggested that senior citizens think about locking in the price of their property at current levels using a reverse mortgage if they think the housing market has already hit its peak.

The property owners can stay in the property with their children and obtain a steady monthly or annual income.

They can apply for a reverse mortgage for a property held in the borrower’s own name or in joint names.

A well-planned retirement plan should cover basic expenses as well as travel, further education and charitable giving to ensure a good quality of life for the rest of one's life.

As the average life expectancy has kept rising, retirees will be in big trouble if they run out of budget when they turn 80 or even 90.

For example, they might become underbudgeted for investment losses or financial help for other family members.

Or they may have suffered loss from fraud or even struggle with extra medical expenses.

The elderly should make good arrangements for their healthcare, such as savings and medical insurance for private hospital services if needed.

They may need to queue for 20 months at a public hospital for a corneal surgery, for example.

And surgery on a knee cartilage at Tuen Mun Hospital would require a wait of 66 months.

This article appeared in the Hong Kong Economic Journal on Sept. 10.

Translation by Julie Zhu

[Chinese version中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.