The Hindu Business Line : ‘It is still early days for reverse mortgage in India’

Given the population’s age profile, family system or living arrangement and geographic dispersal of the target group, it could be early days in India for the reverse mortgage market, according to a report from Celent, a Boston-based financial research and consultancy firm.

The senior citizen population in the country is growing and is expected to reach 117 million people in 2015. Improved healthcare and better nutrition means rising average life expectancy. This represents a huge opportunity for the reverse mortgage loan (RML) market. Establishing an ecosystem for this product class is necessary to meet increased demand, the report argues.

The living arrangement among senior citizens indicates a sizeable market opportunity for RML. Eighty per cent of the senior citizens in the country live with their children, while only around 15 per cent of senior citizens live either alone or just with their spouses. This 15 per cent is expected to grow to 25 per cent by 2015.

Legality of ownership

A major factor that could constrict the size of the target market is the legality of ownership. The report estimates that only 60 per cent of all households in India have clear ownership.

The current market size for RML product is 3 million households and will grow to 6 million by 2015, Celent predicts.

One of the challenges for the lenders relates to distribution and reach. This is because of the geographical spread of the senior citizen population.

A very large number live in the rural hinterland — 80 per cent of the senior citizen population is spread across 550,000 villages. The remaining 20 per cent are distributed across more than 200 cities and towns. Lenders would require a lot of effort to reach the requisite volumes through their distribution channels and would need strategic business planning that considers the profitability of RML, the report points out. Considerable home equity is locked in the target market. Total home equity currently available is $39 billion and is expected to rise to $113 billion by 2015, opening up a significant opportunity for lenders.

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