A possible retirement plan in Singapore reverse mortgage

• Main Authors: Koh, Jenny Mei Wei, Tan, Tai Hoo
• Other Authors: Low Buen Sin
• Format: Final Year Project
• Language: English
• Published: 2014
• Subjects: DRNTU::Business::Accounting
• Online Access: http://hdl.handle.net/10356/58572
• Institution: Nanyang Technological University

This report aims to review the prospects and feasibility of reverse mortgage schemes in Singapore and to make recommendations on the implementation of the schemes here. To achieve these objectives, a review on the development and progress of the reverse mortgage schemes in United States was made. Additional information for the discussion was obtained from pamphlets, brochures, newspapers, periodicals and interviews with potential borrowers and suppliers of reverse mortgage. Besides, this report also aims to anticipate the potential difficulties in administering and implementing reverse mortgage in Singapore, both from the borrowers' and the lenders' perspectives. This, together with an evaluation of the alternative retirement plans, will assist potential initiators of the reverse mortgage programmes here in their initial stage of planning and decision making process, before the launch of their reverse mortgage programmes. As gathered from our interviews, not only is the concept of reverse mortgage unknown to most senior citizens interviewed, it is also lowly ranked in terms of preference by them . In addition, reverse mortgage is also perceived by the respondents as a very risky retirement plan following sales leaseback . Similarly, the sale leaseback and trade down options are less popular among the respondents mainly due to their relatively high perceived risk . Preferential bank accounts for senior citizens and CPF minimum sum scheme, in contrast, are more preferred among the respondents due to the low risk and relatively stable returns attached to such schemes . The presence of competitive alternative plans, the introduction of the CPF Minimum Sum Scheme, and the lack of financial resources and willingness among individual financial institutions to maintain the reverse mortgage scheme are the main stumbling blocks to the implementation of reverse mortgage here. Besides, there is also a lack of tax incentives for both the lenders and borrowers to engage in the scheme. The passing of the new MAS ruling and the Maintenance of Parent Bill also largely limit the market for reverse mortgage. Other problems discussed in this report include those regarding the lack of expertise and labour force to be dedicated to the implementation of reverse mortgage here, the difficulty in accounting for the cash flow and income under the scheme, and the problem in pricing the reverse mortgage. In view of the anticipated problems, this report also put forward a list of recommendations on the implementation of reverse mortgage in Singapore. For a successful implementation of reverse mortgage, we recommend tax exemption on the annuity income under reverse mortgage and creation of the secondary market for houses obtained through the scheme. To safeguard the interests of both the borrowers and the lenders, the annuity income should be insured by the government or the statutory boards. In the initial stage of development of reverse mortgage, we also recommend that the government or statutory boards undertake the role of developing and implementing the programme, with gradual privatization of the scheme in the later mature stage of the programme. To expand the market for reverse mortgage, the MAS ruling prohibiting mortgage loans on housing should be relaxed, awareness of the product by the public should be enhanced , and flexibility in the design of the reverse mortgage should be encouraged.