Evaluation of the Reverse Mortgage Option in Hong Kong

Han, Wei; Wang, Ping; Xu, Hao; Choi, Junesung

doi:10.1111/asej.12117

Cited by 11 publications

(15 citation statements)

References 23 publications

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“…According to Pu et al (2014), Tsay et al (2014) and Han et al (2017), if changes in housing prices follow the log-normal random walk form, the present value of redemption option true( V T a true) is the value of the European call option, which can be estimated based on the B ~ S option pricing model. Therefore, we can calculate the logarithmic house price growth rate based on the historical data of the real-estate market and then perform a normal distribution fitting to verify whether the historical house price obeys log-normal distribution.…”

Section: Theoretical Model and Research Methodsmentioning

confidence: 99%

“…Currently, little quantitative research has been done on the economic validity of HRM with redemption right. In addition, according to the characteristics of Hong Kong’s RMP, Han et al (2017) has confirmed the value of the redemption option and argued that the HRM with redemption option implies European call option, and that the elderly (or his or her heir) can obtain the option value. However, Han’s study confirmed only the option value of the redemption right and did not further analyze the economic validity of the elderly’s participation in HRM with redemption right.…”

Section: Literature Reviewmentioning

confidence: 96%

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Economic validity analysis of housing reverse mortgages in China

Han

Jiang

2019

CFRI

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Purpose The purpose of this paper is to empirically analyze the investment and pension functions of housing reverse mortgages (HRM) with redemption option and raise the participation initiative of the Chinese elderly for the HRM model and enhance their cognition of this financial product. Design/methodology/approach Based on the perspective of the financial decisions of the elderly, this study designs an analysis model of the economic validity of HRM, and takes Shanghai (a pilot city for HRM loans in China) as an example, using data from the Shanghai real-estate index and market interest rates from January 1998 to December 2018, as well as the contract data of HRM, for empirical analysis. Findings The results show that the HRM with redemption option has the characteristics of European call option and can obtain the value of implicit option from the perspective of the elderly. Considering the present value of the accumulated pension income, the present value of the redemption option and the present value of the final housing value, the elderly can obtain investment income from HRM with redemption option. Therefore, for Chinese seniors, the HRM with redemption option has economic validity. Research limitations/implications From the perspective of the demand of the elderly, participation in the HRM with redemption option can increase the life expectancy annuity for various pension expenditures and improve economic status while meeting the demand of inheritance motivation. Practical implications This study helps to clarify the financial decision-making process for elderly people who participate in HRM. On the one hand, it helps policy makers to optimize the implementation mode of HRM and promote the healthy and rapid development of HRM; on the other hand, it is conducive to raising the awareness of Chinese elderly people on this financial products and enhancing their enthusiasm for participating in HRM. Originality/value Few studies have directly analyzed the financial decision process of the HRM model from the perspective of the demand of the elderly. This study enriches the research viewpoint and method of HRM and accumulates data about the Chinese experience with HRM.

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Section: Theoretical Model and Research Methodsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 96%

Economic validity analysis of housing reverse mortgages in China

Han

Jiang

2019

CFRI

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“…With reverse mortgages, the older homeowners may borrow from the lenders using their properties as collateral. The borrowers may choose to take the funds either as fixed monthly instalments in the form of pensions, line of credit, or lump sums (Han et al, 2017). Hence, reverse mortgages have been an important financial tool for cash-poor seniors to release home equity (Shi and Lee, 2021).…”

Section: Introductionmentioning

confidence: 99%

Reverse Mortgages: A Bibliometric Approach

ZAKARIA¹,

FOO

RAHIM

et al. 2022

qjssh

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The present study performed a bibliometric analysis using 119 articles in the field of reverse mortgages from the Web of Sciences (WoS) database from 1978 to May 2022. To provide a comprehensive result, this study employs VOS Viewer software to construct the networks of co-citations of authors and sources of articles. The results show that the growth trend was recognized from the beginning year 2011 and it gained significant attention from researchers before and during the predicament period of the Global financial crisis 2007-8. It can be seen that the positive trend of interest in this field of study remained in the following years, particularly in the years 2020 and 2021. Using the co-citation analysis, the authors focus on fundamental issues in reverse mortgages such as knowledge (literacy) and demands of reverse mortgage products for elderly homeowners, risks associated with reverse mortgages such as default on their property taxes and insurance, potential growth of reverse mortgages as a financial tool, and fair valuations of reverse mortgages. The Journal of the American Real Estate and Urban Economics Association and Insurance Mathematics and Economics are found to be the most-cited journals in the field of study of reverse mortgages.

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“…Reverse mortgages (RM) can effectively integrate the comprehensive advantages of the real estate, pension insurance, and financial markets, as well as allow the houses owned by the elderly to serve in three ways: (i) for habitation; (ii) to provide shelter for the elderly; and (iii) for investment. These functions represent a beneficial supplement to traditional old‐age security (Han et al ., 2017). With the rapid development of the real estate market in China, the large proportion of residential houses, and the gradual rise of urbanization, the development of reverse mortgages can transform social housing assets into pension resources.…”

Section: Introductionmentioning

confidence: 99%

Influence of Egoistic and Altruistic Bequest Motives on the Willingness to Participate in Reverse Mortgages in China*

Han¹,

Wang

Dong³

2020

Asian Economic Journal

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From the perspective of behavioral economics, this study uses a scenario simulation experiment and the ordered‐probit econometric model to empirically analyze the influence of egoistic and altruistic bequest motives of the elderly on willingness to participate in reverse mortgages. The findings are as follows. (i) When controlling for the demographic characteristics of the elderly, the marginal probability of their willingness to participate in reverse mortgages is influenced by two constraints: the egoistic bequest motive and the altruistic bequest motive. However, compared with the egoistic bequest motive, the altruistic bequest motive more strongly affects such willingness. (ii) Improving satisfaction with community old‐age services can significantly weaken the effects of the egoistic bequest motive on the willingness to participate in reverse mortgages, generally by weakening dependence on family old‐age care. However, property tax implementation can significantly reduce the constraint effects of altruistic bequest motives on such willingness, mainly by affecting the cost of housing inheritance to the children. (iii) To increase demand for reverse mortgages, financial institutions should constantly innovate and optimize the operation modes of reverse mortgages to more efficiently cope with the influence of egoistic and altruistic bequest motives of the elderly. Government departments should continuously promote property tax reform and improve the quality of community services for the aged to indirectly promote willingness to participate in reverse mortgages.

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Evaluation of the Reverse Mortgage Option in Hong Kong

Cited by 11 publications

References 23 publications

Economic validity analysis of housing reverse mortgages in China

Economic validity analysis of housing reverse mortgages in China

Reverse Mortgages: A Bibliometric Approach

Influence of Egoistic and Altruistic Bequest Motives on the Willingness to Participate in Reverse Mortgages in China*

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