Thailand’s population ages like fine wine, marking a global trend

The global ageing population has seen a swift rise in the past three decades, with two-thirds of individuals over 60 residing in developing Asian countries. As of 2021, Thailand has officially become a fully aged society, with a fifth of its population aged 60 or above, as per World Health Organisation and UN data.

By 2031, Thailand is projected to transition into a super-aged society, with 28% of its population crossing the age of 60. Data from the Social Development and Human Security Ministry’s Department of Older Persons reveals that up to two-thirds of the Thai elderly lack sufficient income or savings for self-support. A mere 5% of the Thai elderly population has savings exceeding 1 million baht.

The government has employed various financial instruments to cater to the needs of this expanding demographic. These include the establishment of the National Pension Fund Act, which mandates Thai businesses to allocate provident funds for employees, and a National Savings Fund to promote savings among informal workers.

A reverse mortgage, another financial tool, offers funds for those who haven’t saved enough for retirement. This mechanism flips the conventional payment stream, with the lender making payments to the borrower. The borrower’s home serves as collateral in this arrangement.

Paninee Manosan, the deputy managing director of the credit group at Government Housing (GH) Bank, disclosed that reverse mortgages are one of their policies to support the elderly in the ageing society.

However, in the three years of offering this service, the uptake has been slow with only 99 customers availing it so far.

Homeownership trends

Concerns about property ownership rights when the loan term concludes seem to be at the heart of the reluctance, as most people aim to leave their homes to the next generation as inheritance. This trend, however, may be shifting.

Young professionals are increasingly choosing to purchase condominiums or small townhouses in or near cities, providing them with the flexibility to sell and move as per changes in family or work situations. Over time, this could potentially drive up the demand for reverse mortgage loans.

This financial product offers up to 50% of a house’s appraised value and up to 30% of a condo unit’s appraised value. The bank pays customers a monthly amount for the duration of the contract.

The 50% rate of a house’s appraised value is equivalent to 95% of its current appraised value when the future value of money and the interest burden are factored in.

Reverse mortgages are intended for individuals aged 60 and above who fully own residential properties without any debt and require a steady cash flow. At the end of the contract, customers can either redeem the house from the bank or sell the house in a public auction.

Reverse mortgages are a new concept for most Thais, and awareness about them is currently limited. However, GH Bank expects their popularity to surge in the coming 10-20 years as more elderly homeowners will be single or without children. The bank has allocated 1 billion baht for the loan scheme, disbursing loans worth 233 million baht since its launch in 2019.

Mortgage loans

Reverse mortgage loans come with significant risks, hence a maximum loan amount of 50% of the appraised value is deemed appropriate. The loan balance may eventually surpass the property value owing to the lack of repayments before maturity.

This negative equity represents a loss from the lender’s perspective.

GH Bank began offering reverse mortgages in 2019 in Bangkok and metropolitan areas. By 2020, the service was expanded to large cities in 14 provinces and is now offered nationwide. The bank aims to provide 30 reverse mortgage loans per year.

The properties used as collateral must be located in a community, municipality, commercial area, or an area with high market liquidity.

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