Low Enrollment in Pension-Type Hope Sharing Housing... Will Age Restrictions Be Removed?

[Asia Economy Reporter Choi Dong-hyun] In the future, owners of old single-family and multi-family houses will be able to sell their properties to the Korea Land and Housing Corporation (LH) regardless of age and receive monthly payments in the form of a pension.

According to the Ministry of Land, Infrastructure and Transport on the 13th, the government is preparing to improve the system by abolishing the current age restriction of 60 years or older to activate the "Pension-type Hope Sharing Housing" project.

The Pension-type Hope Sharing Housing is a system where the Korea Land and Housing Corporation (LH) purchases old houses and pays the sale price monthly in the form of a pension, then supplies the houses as public rental housing to low-income youth and elderly after reconstruction or remodeling. The target houses for purchase include single-family and multi-family houses, residential officetels, etc., excluding apartments. The sellers receive the payment monthly in the form of a pension.

The government's push to abolish the age limit for pension-type purchase housing is believed to be due to sluggish performance despite the system being introduced in 2018 as a key policy of the Moon Jae-in administration's Housing Welfare Roadmap. During the pilot project, only two contracts were made, and during the first recruitment of the main project last August, the age limit was lowered from 65 to 60 years and the housing price limit was removed, but only three contracts were signed. The second recruitment, which has been underway since November last year, received about 80 applications, but the actual contract rate after field inspections is understood to be low. A Ministry of Land official said, "Despite lowering the entry barriers, there are not many subscribers, so we are working on system improvements to abolish the age limit," adding, "The implementation of such measures will be decided based on the results of the second recruitment to be finalized in June."

LH's pension-type purchase housing differs somewhat from the Housing Pension (reverse mortgage) operated by the Korea Housing Finance Corporation. The Housing Pension is a financial product where a loan is taken from the Housing Finance Corporation using the house as collateral, but in the Pension-type Hope Sharing Housing, ownership of the house is transferred to the Korea Land and Housing Corporation (LH). The pension guarantee period also differs: the Housing Pension lasts until death, whereas the Pension-type Hope Sharing Housing ranges from 10 to a maximum of 30 years.

Regarding eligible houses, apartments are excluded from the Pension-type Hope Sharing Housing, but the Housing Pension is available for all houses with a market value of 900 million KRW or less. The government is currently working on changing the 900 million KRW market value standard to an official land price standard. The housing price limit for the Pension-type Hope Sharing Housing was abolished last year.

The monthly amount received is higher for the Pension-type Hope Sharing Housing. For example, if a 65-year-old subscribes to the Housing Pension with a house appraised at 300 million KRW, they receive 837,000 KRW monthly until death. However, if they subscribe to the Pension-type Hope Sharing Housing under a 20-year condition, they receive 1,533,000 KRW monthly. The Housing Pension is a loan concept requiring compound interest and guarantee fees to be repaid, but the Pension-type Hope Sharing Housing involves entrusting the sale price and receiving it back with interest, resulting in about twice the monthly amount. However, unlike the Housing Pension, the Pension-type Hope Sharing Housing loses the "residence premium" associated with ownership transfer. The Housing Pension allows continued residence in the house, but the Pension-type Hope Sharing Housing may incur additional costs to find a new place to live after the contract. On the other hand, if the Pension-type Hope Sharing Housing contract holder meets the conditions for public rental housing, they can continue to live in their former home.