Study: Reverse mortgage mart to triple to $113 bn by 2015

The market for reverse mortgage services, under which senior citizens can pledge their property for a steady income, will have a potential of $113 billion in India by 2015, nearly triple of the about $39 billion now, a report says.

The reverse mortgage market potential, calculated by the number of senior citizens, establish that the current market size for the product is three million households and would grow to six million by 2015, said the report by global consultancy firm Celent.

"The home equity available is $39 billion and is expected to grow to $113 billion by 2015, which would be a significant opportunity for lenders," the report titled 'Reverse Mortgage Market: Early Days for India' said.

The reverse mortgage market is expected to grow owing to the rapid growth in the senior citizen population, driven by lower fertility rates, improved healthcare and better nutrition.

The Indian government is now employing innovative strategies towards change and it has begun introducing financial instruments aimed at the senior population.

In the Budget proposals for 2008-09, the Finance Minister announced that the reverse mortgage would not amount to transfer and the stream of revenue received by the senior citizen would not be considered as income.

According to the report, the senior citizen population is estimated to become 117 million by 2015, growing from the current 87 million.

"There is great potential for this market, but it requires the building of an ecosystem that would make the product more viable for lenders in an Indian context," Celent analyst and author of the report Ravi Nawal said.

There is an expansive distance that needs to be covered by regulatory institutions and lenders before this sector makes any significant headway in India, Nawal added.

Highlighting that the living arrangement among senior citizens indicates a sizable market opportunity for this product, the report said that 80 per cent of senior citizens in India live with their children, while only around 15 per cent of senior citizens live either alone or just with their spouses.

This 15 per cent is expected to grow to 25 per cent by 2015, it added.

However, the legality of title ownership affects the target market and it is estimated that only 60 per cent of all households in India have clear ownership.

The report also pointed out that the lenders would need a lot of work to reach the requisite volumes through their distribution channels and would need strategic business planning that considers the profitability of the RML.

About 80 per cent of the senior citizen population in India is spread across 5,50,000 villages, while the remaining 20 per cent are distributed across more than 200 cities and towns.