INDIA: Now The Old Can Live Free!

National Housing Bank’s Innovative Reverse Mortgage Plan NEW DELHI (Financial Express), July 19, 2006: Senior citizens will soon have a reason to smile. India's National Housing Bank (NHB) is planning a unique product — reverse mortgage loan — specifically targeted at retired people who own property but do not have adequate income. Property of such people will be valued at current market prices. Once the valuation is done, banks or housing finance companies (HFCs) will offer loans against property to senior citizens, who can opt for either monthly payments or a lump sum payment. While loans are proposed to be for 15 years, NHB will refinance banks or housing finance companies during the period. Mr. S. Sridhar, Chairman, NHB, said, the market size for reverse mortgage products in the country was estimated at Rs 5,000 crore. “Essentially, it’s an alternative social security mechanism for house-owning senior citizens,” he said. Though senior citizens will cease to receive payments after 15 years, they and their spouses can continue to stay in their houses till they are alive. They will not be required to service loans, but if they wish to retain ownership, they will have to repay loans without any interest. In reverse mortgage products, monthly payments or lump sum amounts received by senior citizens are treated as loans in countries like Singapore and Australia. Hence, NHB will make a strong case for treating payments as loans and not income, so that they are tax-free at the hands of senior citizens. _____________________________________________________________________________________ Indian Summer • Market size for the product is estimated at Rs 5,000 crore • Most senior citizens are opting to stay independently, says NHB study • Scheme to provide economic independence to senior citizens • Loans are given against market price of property ____________________________________________________________________________________ The NHB board has approved the product and a nod from the Reserve Bank of India will see the scheme getting off the ground. The NHB Act, too, needs to be amended since it does not allow refinancing of reverse mortgage products is not allowed. The product essentially recognises the changing lifestyle in urban India, where old couples wish to stay away from their children and yet be financially independent. “This would be a niche product and would help those who are in quick need of money but have no means of earning,” Sridhar said. The pricing structure would be decided in consultation with the banks and HFCs, he added. By Mahua Venkatesh © 2006: Indian Express Newspapers (Mumbai) Ltd