The collective voices of senior citizen through Moneylife Foundation and many others has finally been heard. The government has announced that reverse mortgage annuity would be tax-free. However, there is lot more that needs to be done, including regulation, to make senior citizens live a dignified life
A sign that India is waking up to the needs of its aging population is the sudden boost to reverse mortgage (RM) products through a change in tax treatment. RM allows senior citizens, who are short of money, to mortgage their property to a bank and get monthly payments in the form of annuities (through an arrangement a bank has with an insurance company). Annuities are taxable but those from RM will be tax-free as per the new thinking. The government has also allowed payments to be made for the lifetime of the borrower by removing the absurd cap of 20 years laid down earlier. It has taken more than three years for the government to accede to requests from industry and NGOs, including Moneylife Foundation, to make annuities tax-free. Why is this so important? Because, in times of galloping inflation and healthcare costs, senior citizens are able to draw down the value of their homes to generate spending money while continuing to live there for their lifetime.
A few months ago, Moneylife collated published data on the net worth of young couples across the country. It showed that over 75%-85% of their wealth is in illiquid real estate, mainly for the roof over their head. We expect the data to be similar for senior citizens. While India has an old-age pension scheme that pays a pittance to destitute seniors, there is no protection for middle-class elders facing a financial crunch. Also, unlike developed countries, the Indian government offers no social security for those who have paid their taxes throughout their working lives; nor does it provide any guarantee or subsidy on RM products. Consequently, India has the first market-based RM product where the mortality and interest risk is borne by two separate entities—a bank and an insurer.
Despite this, ever since it was launched in 2008, reverse mortgage, as a concept, has struggled to become viable and understood by the tax authorities. The initial RM products were structured as loans leading to harassment when tax authorities treated the payments from banks as taxable income. Then the government issued an official clarification, making income from RMs tax-free. The new changes in RM products structured as annuities will hopefully lead to the launch of more attractive RM options.
Of course, some cultural issues remain. Banks that have launched RM products say that children, who cannot provide for parents, still resent their going in for RM, since they see it as an erosion of their legacy. India also has a class of elders who took a home loan rather late in life and are repaying a mortgage after retirement with no new income to support them. Although RM products have failed to take off so far, this market is estimated at upwards of Rs20,000 crore and can see robust growth if banks invest in creating awareness about the product and market it without exploitative or extortionate charges.
After all, there is a growing number of middle-to-affluent-class parents who do not want to depend on their children nor do they need to protect their homes as inheritance.
Retirement Homes Spreading
But well thought-out regulations required
An unprecedented economic boom since 2003 has created a new set of needs and expectations among economically independent senior citizens. Many of them have children living abroad or in other cities, creating a market for retirement communities where they can live with people of their own age and similar interests. In ideal situations, retirement communities provide secure and serene living without the drudgery of housekeeping, maintenance of infrastructure and cooking, for a price, as well recreation and companionship. As seniors grow older and need skilled nursing and healthcare, there is a big market for assisted living facilities. In most developed countries, these are highly regulated services, with stringent rules and liabilities for failure to deliver the promised care, service or infrastructure.
But while the government slumbers, the market has been quick to recognise the implications of changing demographics and launch products for senior citizens in different economic segments. According to Jones LaSalle, the current demand for senior housing is 300,000 units. Its report says we already have around 30 retirement home projects in Pune, Chennai, Bengaluru, Goa, Coimbatore and other cities. Most of these are priced between Rs25 lakh to Rs1 crore, says the firm. Apart from the deposit/purchase cost, the monthly cost of living (covering food, transport, amenities such as libraries, recreation, healthcare, concierge, etc) is estimated at Rs5,000 to Rs15,000 per couple going to as high as Rs35,000 to Rs45,000 in the luxury category. Some also offer a deposit-model to rent space in a retirement community rather than buy it outright.
Maintaining retirement homes and assisted living facilities requires trained and technical manpower and high level of discipline. The nature of the business indicates the need for strict regulation and enforcement to ensure that service-providers deliver the promised services. While there are extremely well-run retirement homes, there are also rising complaints about bad maintenance, false promises, staff issues, vanishing cooks and, worse, a sense of being trapped in a situation which has no easy exit or re-sale value. Unfortunately, as far as public policy is concerned, the government is still in the last century and the current generation of seniors will be the guinea pigs whose travails and experiences may lead to new legislation, but only if they come together and make their voice heard.
Elder-care market is growing without any oversight
India will have the second largest population of senior citizens in the world in a few decades from now, but there is little public discussion on planning for an aging population. The Global Age Watch Index ranks India 73rd in senior-care and an article in The Economist shows that we are among the worst countries to die in. The National Policy for Older Persons (NPOP), framed in 1999, has not yet been implemented and it is already outdated. It does not take into account the huge economic surge between 2003 and 2013. How does this affect the Moneylife reader? Well, galloping healthcare costs, an acute shortage of specialised training facilities for geriatric care-givers, especially for homecare, no push to create and regulate assisted living facilities which are becoming crucial in urban areas for elderly persons battling Alzheimer’s, Parkinson’s, strokes or dementia, are just some issues. How important is this? In the US, there are 31,000 highly regulated assisted living facilities that cater to 750,000 people. Yet, even in this regulated environment, ProPublica (a not-for-profit, independent web journal) published a huge exposé on how Emerald Hills, a much touted, fast-growing chain of publicly listed assisted living facilities was cutting corners on staff and care-giving in order to extract higher profits. Imagine the kind of horrors and exploitation that would occur in India if unregulated business were allowed to grab a clearly growing market segment just because the government does not care and there is already an acute shortage of trained manpower.