There has been lots of talk about reverse mortgages in different parts of the world and many people had high hopes for the product in India. However, the Economic Times writes that senior bank officials say the product has failed to take off the way people had hoped.
A senior bank official, who did not wish to be identified told the Economic Times that less than 500 applicants have used the product in India since its inception in 2007.
There seem to be many reasons the model hasn’t taken off in India ranging from an emotional attachment with one’s house to real estate price correction. Many also feel that an absence of clear guidance against legal complications to inadequate marketing, are reasons the product hasn’t been unable to meet the expectations of financial institutions.
Dewan Housing, which is one of the largest housing finance companies, has been able to sell only 4-5 reverse mortgage loans during the last two years. Two large financial institutions, HDFC, which incidentally is one of the largest home loan lenders in the country, and Kotak Mahindra do not have reverse mortgages in their portfolios.
In fact, several other players in the segment are also facing difficulties in selling reverse mortgage products. Says Sujan Sinha, senior V-P and head of retail liabilities, Axis Bank, “The product has not done well. In India, you can count the number of cases of reverse mortgage on your finger tips.”
There are some very basic reasons that have worked against this product which has taken off rather well in international markets. The psyche of Indians does not make them comfortable with the idea of selling their home.
The tradition of passing down one’s property over generations is an age-old one and is unlikely to change soon. Inheritance of property too is a problem. According to Kamlesh Rao, senior V-P at Kotak Mahindra Bank, the problem lies in the fact that in India the son inherits the property of his father but is reluctant to inherit the loan amount.
“Such a model may not work in our country due to its very nature. One’s shelter is not meant to be sold,” reiterates Mr Sinha.