2098 Mid-Year Cancellations in H1... 48% Increase YoY
Record High Expected This Year... Annual Decline in New Sign-Ups
Despite 3-Year Re-Enrollment Ban, Housing Price Gains Remain Significant
[Asia Economy Reporter Kwangho Lee] Jeon Sumin (alias), in her 70s, living in a 40-pyeong apartment in Yeonsu-gu, Incheon, is recently considering canceling her housing pension. She joined the lifetime payment type housing pension using her apartment, which was worth 350 million KRW at the beginning of last year, as collateral and has been receiving a monthly pension of 1.08 million KRW. However, the apartment price has risen by more than 200 million KRW in one year. If Ms. Jeon joins the housing pension now, the expected monthly payment would reach 2 million KRW.
Park Sang-eun (78, alias), living in Goyang-si, Gyeonggi-do, is also reviewing cancellation because although the house price has increased, the pension remains the same. He joined the housing pension at the end of 2019 using an apartment worth 550 million KRW as collateral and has been receiving a monthly pension of 1.5 million KRW. However, in less than two years, the apartment price rose to around 900 million KRW. If Mr. Park joins the housing pension now, he could receive about 3 million KRW.
Seong Jun (67, alias), living in Seongbuk-gu, Seoul, recently canceled his housing pension. He was receiving a monthly pension of 2.15 million KRW using a 30-pyeong apartment worth 700 million KRW as collateral in early 2017, but the current apartment price has reached 1.1 billion KRW, and the pension increase rate has not been reflected.
As house prices soar, more people are considering or actually canceling their housing pensions. When canceling a housing pension, the total amount received must be repaid with compound interest, and rejoining with the same house is not allowed for three years. However, the calculation shows that the benefits gained from cancellation are greater.
According to the Korea Housing Finance Corporation on the 23rd, the number of early cancellations of housing pensions in the first half of this year was 2,098, a 48% (993 cases) increase compared to the previous year (1,165 cases). Based on this trend, early cancellations of housing pensions are expected to reach a record high this year.
On the other hand, the number of new housing pension subscriptions has been decreasing every year. Last year, there were 10,982 new subscriptions, down 7.4% from the previous year (11,172). In the first half of this year, there were only 5,075 new subscriptions.
The corporation expanded the eligible age for housing pension subscription from 60 years old to 55 years old in April last year and adjusted the eligible house price from market price 900 million KRW to official price 900 million KRW in December, but these measures showed little effect. The increase in early cancellations and the slowdown in new subscriptions are analyzed as phenomena caused by the significant rise in house prices.
Introduced in 2007, the housing pension is a loan where a fixed amount is received monthly as a pension using the house currently lived in as collateral. The higher the house price at the time of subscription, the larger the pension amount received. Therefore, if the house price rises significantly after joining, it may be better to cancel the pension and sell the house or rejoin.
When canceling the pension, the guarantee fee, which is about 1.5% of the house price, is not refunded, and rejoining is not allowed for three years, among other disadvantages. However, if the profit from the house price increase is greater, cancellation may be worthwhile.
A corporation official explained, "Early cancellations occur due to various reasons such as the exercise of property rights by the subscriber, including house sales, child support due to aging, and admission to nursing homes. The housing pension is a reverse mortgage loan accompanied by financial costs such as interest and guarantee fees. Recently, cases of subscribers disposing of their owned houses or downsizing to prepare retirement funds due to changes in their personal circumstances have also increased."
He added, "It is a natural economic decision for subscribers to secure necessary funds for retirement through house sales, but if early cancellation is made simply because house prices have risen, it is necessary to fully consider the situations that may arise afterward," he advised.
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