Analysis on demand factor of regional difference for reverse mortgage-based on survey data in Beijing & Hangzhou

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1 Available online Journal of Chemical and Pharmaceutical Research, 2014, 6(5): Research Article ISSN : CODEN(USA) : JCPRC5 Analysis on demand factor of regional difference for reverse mortgage-based on survey data in Beijing & Hangzhou Zhou Haizhen School of Finance, Zhejiang University of Finance & Economics, Hangzhou, China ABSTRACT With China entering the aging society, changing of family structure and the appearance of more and more empty-nest families, reverse mortgage is gradually to be concerned. Howerever, the demand willingness of the olderly for reverse mortgage is not strong. Using questionnaire survey of the elderly demand for reverse mortgage in both Beijing and Hangzhou, the article describes the difference between two regions in elderly s attitude to real estate and reverse mortgage. At the same time, the article analyzes the factors influencing the demand of reverse mortgage in both regions by multiple ordinal regression model, and carries out a comparative analysis of the differences. Then, the article makes recommendations on how to develop reverse mortgage market and related product design. Key words: aging; Reverse mortgage; market demand, regional difference; multiple ordinal regression INTRODUCTION With the increasingly aging, old-age security system in China is facing severe challenges now. 1 Due to improving the elderly s income and quality of life and alleviating the pressure of the social security pressure, some countries pay attention to the reverse mortgage, especially in the United State and Singapore which have begun to try out the House-For-Pension pattern. According to the survey of Chinese family finance(2012), the data shows that the percentage of the Chinese family which has own home ownership is 89.68%, among them, the percentage of the urban households is % 2. However, the elderly who cannot rent or resell the house, and they become the rich of house and the poor of cash. If we can use reverse mortgage, it can increase the current cash flow to improve the elderly s economic conditions on the premise of not being lost the residence. But due to the traditional concept of Rear sons for help in old age and Property inheritance, many consumers cannot accept this kind of pension mode. So there is a big gap between the real demand and the estimated potential demand in reverse mortgage market. Now many scholars have done many researches for reverse mortgage. Caplin(2001), Leviton(2003) analyzed the probable reasons of the lack of potential demand for reverse mortgage on the basis of the practice and the psychological, such as the cost of reverse mortgage is higher, so the owner usually consider reverse mortgage as the final way to finance [1-2]. Bao Linmei (2005) maintains that family pension mode restricts the real demands of reverse mortgage [3]. Chi Lingming & Zhang Yi (2005) do the questionnaire survey for Lushun, Dalian and Zhang Ran & Fan Ziwen (2009) do that for the elderly in Beijing[4-5]. They all qualitatively analyze the factors of the influence on reverse mortgage market demand then come to a conclusion that the traditional concept restricts the reverse mortgage demand. However, the region is vast in China, various places have different levels of economic development and the ideas of people are totally different, so the attitudes to demand for reverse mortgage are also 232

2 non-consistent. Therefore, by the comparative analysis of the demand of reverse mortgage in different regions, we can understand the different factors influencing the reverse mortgage demand on the elderly, which will be beneficial to formulating reverse mortgage related policy. So the paper analyzes the regional difference factors influencing the demand willingness of reverse mortgage based on both Beijing and Hangzhou s survey of reverse mortgage of the elderly, 2 A DESCRIPTIVE ANALYSIS ON RESULTS OF THE SURVEY 2.1 The Date Source This data in research from questionnaires (questionnaire content is the same) aimed to year-old people in Hangzhou and Beijing. Excluding the invalid questionnaires, there are 816 and 607 valid questionnaires in Beijing and Hangzhou respectively. Why we choose Beijing and Hangzhou to make a comparison? One reason is that both cities are developed regions in china, more than 70% and 79.2% of residents have their own occupied houses in Beijing and Hangzhou respectively, which makes people have the material basis to participate in reverse mortgage; secondly, both cities have an active secondly housing market in which dealing secondhand houses in Beijing and houses in Hangzhou in All these provide a nice platform for circulation of house recovery for financial institutions in future. Thirdly, Beijing, in the north of China, is the capital of China for a long time which has a long profound culture and history. However, Hangzhou, located in Chinese economically developed Yangtze River delta region. Due to the different human and geography environment, there will have bigger differences on culture, idea and personality, thus residents in different regions have different attitudes to reverse mortgage. 2.2 The Descriptive Comparative Analysis on the Sample This research mainly studies the 6 districts in Beijing and the urban area in Hangzhou, the information which is collected from questionnaire reflects on the Table 1. Table 1: The elderly s living status and the demand willingness in different regions(%) items Beijing Hangzhou items Beijing Hangzhou Background unknown Age Economic situation Source of income Dependent on children Sex Independent Man Social support Woman others Education Monthly income Junior high school and below Below 1000 RMB High school /technical school RMB Junior college RMB Bachelor RMB or above Master or above The need for increase monthly income Children A great need No children Common need Have children Not need Living conditions The attitude to house and reverse mortgage Living ways The attitude to house(1) Live alone As the last resort Live with spouse As a way to improve the living standard Live with children The attitude to house(2) Number of real estate Need not leave house to children Wish to leave house to children Need to consult with children if reverse mortgage involved in their children inheritance The demand willingness to reverse mortgage 4 or above Not intend to Total house price Relatively not intend to Below 1 million Not sure million Relatively willing million Very willing Above 4 million The most appeal of reverse mortgage unknown Can improve living standard The age of house Can take out a medical treatment fee when get sick Below 6 years Reduce the burden of children supporting years Don t have to consider the property allocation problem after death years Increase income so that can afford the costs of superior care institutions years Nothing appeals to me years or above From survey results, we can see more than two-thirds of the elderly is financially independent, their incomes are 233

3 mainly from pensions, insurance and investment income. It shows that the elderly are less dependent to their children on the economic. The traditional concept such as family supporting and rear sons for help in old age is gradually changing now. But in terms of the monthly income, most income of respondents in both cities is between 1000RMB to 3000RMB. In 2012, the urban residents per capita disposable income in Beijing and Hangzhou is 3039RMB and 3126 RMB respectively, it shows that most of the elderly s income is lower than the average income level. Therefore, more than 70% of respondents in both cities want to increase their income. The above data indicates that most of the elderly in China rely on limited pension to live which has a long distance to a comfortable standard of living. Therefore, reverse mortgage is an effective complement to the pension which can improve the living standards of the elderly and lighten the burden of supporting. At the same time, we find that there are some differences on the living status and the demand willingness of reverse mortgage between Beijing and Hangzhou. Firstly, the proportion of the elderly who are supported by their children is much higher compared to Beijing. However, on the way of living, they tend to choose live alone or with their spouse, namely the empty nest family. As is known to all, reverse mortgage is suitable for the empty nest family, so it can be seen as an optional and suitable way of supplementary pension in Hangzhou. Secondly, in terms of the age of houses, although the price of houses of most respondents is under 2 million, the number of Hangzhou respondents whose house age in 7 to 13 years is much higher than that in Beijing. The house with such age is the main force on the secondary market which is suitable for reverse mortgage. Thirdly, although both cities people view reverse mortgage as the last resort only when in emergency, in comparison, more the elderly (71.9%) in Beijing wish to leave houses to their children. However, the elderly (21.6%) in Hangzhou tend to maintain that reverse mortgage can be a good way to increase their income and reduce the burden of the children. So reflected on the demand willingness of reverse mortgage, we can see, although the demand for reverse mortgage of very willing and relatively not intend to is about the same between two cities, however, the proportion of the demand for reverse mortgage of not intend to (46.1%)is much higher than that (12.4%) in Hangzhou. However, the proportion of the elderly in Hangzhou who has a relatively willing to reverse mortgage (22.4%) is higher than that (7.5%) in Beijing. In addition, nearly half of respondents in Beijing maintain that reverse mortgage cannot attract them at all. On the contrary, about half of respondents in Hangzhou think that reverse mortgage can improve their living standard and reduce the burden of their children. Obviously, although the elderly in two cities wish to leave houses to their children, in comparison, the elderly in Hangzhou tend to accept reverse mortgage as a way to improve their living standard and show a relatively strong willingness to it. 3 THE COMPARATIVE ANALYSIS ON FACTORS OF THE DEMAND WILLINGNESS FOR REVERSE MORTGAGE 3.1 Correlation Analysis In order to study the factors influencing on the demand willingness of reverse mortgage in different regions, we should do further analysis by multiple ordinal regression model which is based on the data of Beijing and Hangzhou respectively. Variable name Table 2: The variable names and meaning in multiple ordinal regression model Variable meaning Dependent variable Willingness of reverse mortgage Not intent to=1,relatively not intent to=2,not sure =3,relatively willing=4,very willing=5 Independent variable X i Age The way of living House number House value House age Income source Monthly income Whether buy health insurance Health status Sex Graduate background Whether have children Age interval:50-54=1,55-59=2,60-64=3,65-69=4 Live alone=1,live with spouse=2,live with children=3 1 house=2,2 houses=3,3 houses=4, 4 houses or above=5 1million=2, 1-2 million =3,2-4 million =4, above 4 million=5,unknown=6 After 2007=1, =2, =3, =4, Before 1969=5,unsure=6 Support by children=1,economic independence=2,government subsidies=3,others=4 Below 1000 RMB=1, RMB=2, RMB=3, 5000RMB or above=4 yes=1,no=2,not sure=3 Not healthy=1,relatively not healthy=2,not sure=3,relatively healthy=4,very healthy=5 man=1,woman=2 Junior high school and below=1, High school/technical school=2,junior college=3,bachelor=4,master or above=5 no=1,yes=2 The dependent variable is the demand willingness for reverse mortgage, we denote 1,2,3, 4,5 as not intend to, 234

4 relatively not intend to, not sure, relatively willing, very willing respectively. The independent variables X i = 1, are age, way of living, house number, house values, house age, income source, monthly income, i ( ) whether to buy health insurance, health status, sex, education background, whether have children respectively, all the specific meanings are shown in Table 2. First of all, we analyze the correlation between the demand willingness of reverse mortgage and different variables X. The result (show in the Table 3) indicates that the correlation between potential demand of reverse i mortgage and other variables is different between two regions. In Beijing, there is a significant correlation between demand willingness and factors such as participants who whether buy health insurance, health status, participants who whether have children. And there is a relatively significant correlation between the demand willingness and factors such as the way of living, house value and the age of houses. In Hangzhou, the significant factors include the number of house and monthly income. What s more, there exit relatively significant factors such as the way of living, source of income, health status, whether have children and the age of house. Table 3: The correlation analysis between the demand willingness and other variables Age The way of living The number of house Demand willingness correlation ** ** *** significant The house value The age of houses Income source Demand willingness correlation * * ** ** significant Monthly income Whether buy health insurance Health status Demand correlation *** *** *** 0.089** willingness significant sex Education background Whether have children Demand willingness correlation *** ** significant Note: *, **, *** is on the significant level in 10%, 5% and 1% respectively. 3.2 The Empirical Analysis on the Demand Willingness of Reverse Mortgage in Two Cities According to the results of correlation analysis, we select variables which are related to the demand willingness of the elderly significantly as independent variables, and then analyze their impact degree by multiple ordinal regression model. The result is shown in Table 4. We define the dependent variable as 1(not intend to) to 5(very willing) gradually, so if variable coefficient is positive and the more the variable value is, the greater the demand willingness of reverse mortgages be. Variable Table 4: The Regression Analysis Results on Demand Willingness in Different Regions coefficient coefficient variable Beijing Hangzhou Beijing Hangzhou The number of houses *** Income source:government subsidy(others=0) 0.628** The age of house 0.175** *** Whether have children:no(yes=0) 0.963*** 0.862** House value * Way of living:alone(live with children=0) 1.157*** 1.256*** Monthly income *** Way of living:live with spouse (live with children=0) Buy health insurance:yes(not sure=0) 1.305*** Threshold *** Buy health insurance:no(not sure=0) Threshold *** Health status *** 0.189** Threshold *** Income source:supported by children(others=0) ** Threshold *** 3.395*** Income source:independent(others=0) ** The significant test of the model P<0.001 Note: *, **, *** is on the significant level in 10%, 5% and 1% respectively. Meanwhile, in order to verify whether different regions can influence the elderly s demand willingness of reverse mortgage, we do the analysis of variance between regions and demand willingness of reverse mortgage. We define the demand willingness of reverse mortgage (5 kinds of choices, specific meaning is shown in Table 2) as the dependent variable, the respondents regions (Beijing=1, Hangzhou=2) as the independent variable, and then do the following assumptions: H 0 :Geographical factor not significantly affects the demand willingness of reverse mortgage 235

5 H 1 :Geographical factor significantly affects the demand willingness of reverse mortgage Variance test result is shown in Table 5 and Table 6. Table 5: The Test Results of Homogeneity of Variance(demand willingness) Levene statistics df1 df2 significant(sig.) Table 6: Test Results of Variance(demand willingness) Quadratic sum df Mean square F sig. Inter-group Intra-group Total We can see from Table 5 that concomitant probability sig.=0.624>significant level 0.05,which means that population variance is the same. From Table 6, we can know that F statistics is , concomitant probability sig. (p value)=0.000<significant level 0.05, so we should refuse H 0, which shows geographic factors have a significant impact on the elderly s demand willingness of reverse mortgage. 3.3 The Analysis on the Difference of Demand Willingness between Two Cities The empirical analysis results of reverse mortgage in both cities show (in Table 4)that way of living and whether have children have a significant impact on the demand of reverse mortgage. For the elderly in both cities, live alone or without children has highest demand willingness for the reverse mortgage. It is because that the elderly who live alone intent to improve their lives by reverse mortgage. However, the elderly with children have stronger willingness to leave their houses to their children. In which we can see that there still exits a deeply concept of the property inheritance. The age of houses has a relatively significant impact on demand willingness of reverse mortgage in both cities, but the correlation coefficient of plus and minus is opposite. So it means that in Beijing, the longer the age of houses is, the more intense reverse mortgage s demand willingness be. But it is opposite in Hangzhou. It means that the elderly in Hangzhou pay more attention to loans can be received than in Beijing. Because the shorter age of houses is, the easier the elderly can get supplementary pension; While the elderly in Beijing pay more attention to the gift value of houses, when the houses lost the gift value due to a long age, they will began to consider reverse mortgage to make up the inadequacy of pension. The self assessment of health also have a relatively significant impact on the reverse mortgage in both cites, however, the correlation coefficient of plus or minus is just opposite too. In Beijing, the elderly who are in lower level of health demand reverse mortgage intensely because of the increase of medical expenses; however, in Hangzhou, the higher level of health of the elderly, the more intensely they want to take reverse mortgage. The comparison shows that once the elderly in Hangzhou participate in this program, they will want to get more loans. Because the reverse mortgage has without recourse clause and if the way of payment is a life annuity, the longer the elderly live, the more loans they would receive by reverse mortgage. In Beijing, the source of income and monthly income has not significantly impact on demand willingness of reverse mortgage. However, in Hangzhou, these two factors have significant impact on it. In which monthly income has a negative impact on the demand of reverse mortgage, namely the elderly who have less monthly income will more intend to get reverse mortgage. In terms of source of income, if government subsidies is the main source of the elderly, then it will have positive influence on demand of reverse mortgage, on the contrary, the elderly who are economic independent or depend on their offspring will have negative influence on demand of reverse mortgage. The reasons maybe, on the one hand, the elderly whose income is mainly from government subsidies wish to improve their living standard by reverse mortgage; on the other hand, the elderly who are supported by their offspring intend to leave their houses to children instead of reverse mortgage. In Beijing, house value has a relatively significant impact on demand willingness of reverse mortgage. The lower the house value, the more intense demand of reverse mortgage will be. In Hangzhou, the number of houses has a significant impact on the demand of reverse mortgage. The elderly who have less houses will have much more strong demand for reverse mortgage. The reason maybe the elderly who have high value house is rich enough and do not need to take reverse mortgage. Also, the elderly who have many houses can rent or sell their houses to make 236

6 up the inadequacy of pension instead of reverse mortgage. However, the elderly who have only one house would participate in reverse mortgage to supplementary pensions while will not lose the right of habitation. In addition, whether to buy health insurance has a significant impact on reverse mortgage for the elderly in Beijing. Maybe the insurance is a relatively new product for elderly, so the elderly have a stronger acceptance to finance product and demand willingness for reverse mortgage if they purchase health insurance. However, in Hangzhou, it has no significant impact on demand willingness of reverse mortgage. It may be because that the elderly in Hangzhou do not know the health insurance well and it has no inevitable relationships. CONCLUSION We choose Beijing and Hangzhou as an example and analyze the demand willingness and impact factors of reverse mortgage in different regions, then come to conclusions as follow: First of all, from the point of the results of the survey, more than half of old people s monthly income are below 3000RMB in both cities which is lower than the average disposable income level, so more than 70% of the population hope to increase their income. At the same time, more than 90% of the elderly have 1 or 2 houses. So we can find out that the income of the elderly in China is not high nowadays, but mostly with houses, so reverse mortgage is a good way to improve their living standard. What s more, for the attitude of houses, although the elderly in both cities take the houses as the final way of finance only in emergency, and they wish to leave houses to their children; But in comparison, the elderly in Beijing tend to be more intense than those in Hangzhou. Reflected on the attitude of reverse mortgage, the elderly in Hangzhou express more demand willingness of reverse mortgage, and they see it as a tool to improve living standard and lighten the burden of children. However, more than half of the elderly in Beijing maintain that the reverse mortgage has nothing to attract people and therefore they do not need it. Finally, although whether have children, the way of living and other non-economic factors have a significant impact on the demand willingness of reverse mortgage, we can see that there exit some differences in different regions. In comparison, the economic factors have a significant impact on demand willingness of reverse mortgage in Hangzhou. For example, monthly income and the source of income both are relatively significant factors; however, these two factors have no significant impact on the reverse mortgage in Beijing. In Hangzhou, once the elderly participating the plan of reverse mortgage, they will want to get more loans, so they want to use the houses whose age is lower to apply for loans. What s more, the health old people prefer to participate reverse mortgage than the weak, while the empirical analysis of questionnaire comes to the opposite conclusion in Beijing. Suggestions According to above analysis, we can conclude that reverse mortgage has a potential develop space in China, but it is restricted to the non-economic factors such as traditional ethics culture concept. And in different regions, factors affecting the reverse mortgage are also different. So in the process of the future development, government, with financial institutions should do some propaganda and provide some products. To be specific: Due to the difference in north and south culture, the northern residents pay more attention to the traditional concept of inheritance, on the contrary, the southern residents is relatively open-minded and easy to accept new items. So the government and relevant departments should put special emphasis on the concept of new pension for the elderly in north, intensify propaganda and enhance the social influence of reverse mortgage. All should highlight it can effectively solve the lack of pension and reduce the burden of their children. Government should let the elderly reduce the impact of the traditional concept. The elderly with different income level have different motive to the reverse mortgage. So the loan provider should not only focus on potential consumers with intense demand but also different kinds of demand among different groups, design and improve the contract and make it much more attractive. In addition, from the above empirical analysis, we can see that the higher level of health the elderly is, the more intense they need reverse mortgage in Hangzhou, which means there exits strong adverse selection on the market. Loan providers should design the contract such as specific benchmark pay period or combine with long-term care insurance, etc.. On the one hand, it can eliminate the adverse selection as far as possible; on the other hand, it can attract the elderly whose health is not good to get involved in. For the government, on the one hand, they should cooperate with mortgage institutions, design a reasonable policy specification and guarantee the promotion of reverse mortgage. Meanwhile, as a regulator, the government can also 237

7 follow America s example to give a certain policy support, provide credit guarantee, ensure the normal operation of the reverse mortgage market and eliminate the worries of the elderly. Acknowledgement The authors gratefully acknowledge the projects of the youth fund project of ministry of education humanities and social sciences (Iitem No. 11YJC790306), and Zhejiang Provincial Natural Science Foundation (Item No. LY12G03009). REFERENCES [1] Caplin, A., Innovations in Housing Finance for the Elderly, [2] Leviton, R., Journal of Aging and Social Policy, 2002,13:1-16. [3] Bao Linmei, PHD Thesis, Renmin University of China,2005. [4] Chi Jingming, Zhang Yi, Zhang Weina, Journal of Liaoning Normal University. 2007, 30:16-18 [5] Zhang Ran, Fan Ziwen, Technology Economics, 2009, 9: