ATTRACTIVENESS OF REVERSE MORTGAGE AS AN OPTION TO UNLOCK HOUSING EQUITY

Abstract

Singaporeans are asset rich and cash poor at retirement and the government has responded to alleviate this problem but the measures are in sufficient. As this problem is a pertinent issue, it enforces the importance of unlocking housing equity as a panacea. Reverse Mortgage(RM) is one such tool but the market is not being developed for public housing. The study is conducted to measure the attractiveness of RM by comparing it with four other options namely the Studio Apartment(SA) scheme, rental, sale of flat and downgrading. The hypothesis tested is that RM is an attractive option to unlock housing equity for elderly Singaporeans. The hypothesis was tested using 3 dimensions. Firstly the preferred living arrangements of the elderly was profiled using secondary data sources. Secondly, if bequest is full, reduced or none after exercising the option and finally the pay out value of each option was calculated. In terms of living arrangements and bequest motive the hypothesis was rejected but in terms of pay out value the hypothesis was accepted. Finally the hypothesis was tested using all the 3 dimensions. Because of the rigidity of the RM scheme compared to the flexibility of the rental scheme, the hypothesis that RM is an attractive option to unlock housing equity for elderly Singaporeans was rejected. The most attractive option for an elderly who wish to age in place with a future intention to co reside with children and has full bequest motive, is the rental scheme.