Give your flat to get pension - Serbia still awaits reverse mortgage, bankers without initiative to grant new loans to pensioners

Source: eKapija Thursday, 27.02.2014. 16:08
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Long time ago, banks worldwide started signing contracts on a lifetime payment of certain amount of money to the retired if they promise to leave a flat to a bank after their death. This kind of contract is known as reverse mortgage.

Still, that kind of a loan is unknown in Serbia. It might be because our citizens rather opt for leaving their real estate to children even at the price of living a more modest life.

It is not a rare case that aged citizens opt for certain sum of money or rather for “lifetime support”, they give a flat to a stranger, especially if they do not have heirs. Anyway, transfer of flats is still carried out far away from banks because a dilemma whether it is better to live as a gentleman by mortgaging a flat to a bank or to sacrifice oneself by leaving a flat to kids still does not exist in our parts.

Dejan Vucinic, director of the Retailing Department of the Societe Generale bank, says that the experience of the developed countries showed that apart from the retired, users of reverse mortgage are at the same time users of social assistance, older farmers as well as the aged ones without a regular income.

- In most of the countries these loans are not provided for those younger than 62. That type of crediting has been designed, on one hand, to solve the problems of the socially endangered old-aged population and, on the other hand, to increase income for the current consumption by the aged citizens. And really, these loans are becoming more and more accepted in North America and EU countries.

Our interlocutor explains that the essence is in crediting citizens who do not have cash but own valuable real estates.

- It is important to say that loan consumers do not lose previous rights they obtained such as pensions or social giving – Vucinic says.

Since Serbia is experiencing a trend of faster citizenship aging and increasing social insecurity of the aged population, there is no doubt that reverse mortgage would be well-accepted, especially taking into account that there is more than half a million singles in our country.

- This crediting concept could be implemented in Serbia but it is not realistic to expect that it will happen soon. Introduction of this kind of a loan will have economic justification the moment the crisis ends, when the market goes back to normal and where financing of citizens through reverse mortgage requires certain adaptation to effective regulations and internal banking regulations – Vucinic said.

Innovative for us, known to the world

On the other hand, reverse mortgage would affect financial market situation as well since they would be an innovative banking product in Serbia. As any other financial market, their objective is to provide more efficient allocation of assets than the one currently possible.

The Fiscal Council member, Nikola Altiparmakov says that life-time support is an interesting investment option for a number of participants at the financial market such as banks and insurance companies.

- With an adequate regulation of the reverse mortgage market, two problems would be solved – the aged become protected and have a security that other party will comply with its obligations while financial institutions get new, long-term funds placement instrument.

(Photo: I.Vukša)

Pensions

Each time a necessary pension reform and age limit change are mentioned, it becomes evident that future generations of the retired will have to rely more on additional private savings, regardless of a bank savings, life insurance policy, private pension fund, etc.

- Many citizens gladly (conservatively) save in real estate so that with adequate regulation of reverse mortgage it is potentially possible to transform savings in real estate into a legitimate framework of voluntarily pension savings - Altiparmakov explains.

The option already exists in a large number of developed countries.

Jelena Djelic

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