[Financial Microscope] 80% of Elderly Assets in Real Estate... Why Housing Pensions Are Gaining Attention in a Super-Aged Society

KHFC's "Housing Pension":
"Receive a Monthly Pension While Living in Your Own Home for Life"
Simultaneously Addressing Elderly Livelihood Stability and Housing Insecurity
"More Diverse Options Needed, Including Products for Homes Exceeding 1.2 Billion KRW in Official Value"

As South Korea enters the "era of 10 million elderly population," demand for housing pensions is increasing. For the elderly who have not prepared separately for retirement, find living expenses insufficient with only the National Pension, and own only one house, the housing pension is a useful means of retirement preparation. Many elderly people in Korea have assets concentrated in real estate. According to Statistics Korea, the proportion of real estate in the assets of elderly households increased to 81.3% last year.

The housing pension is a financial product that allows one to receive a lifelong pension by using their house as collateral. It is essentially an interest-deferred installment loan product secured by the house. The principal and interest of the loan are not paid separately; instead, when both members of the subscribing couple pass away, the property is auctioned off and settled.

The housing pension was first introduced by Kookmin Bank in 1995 in the private sector, but sales were sluggish and the market did not develop. When the private sector’s housing pension products failed to function properly, the government selected the "Reverse Mortgage Activation Plan" as a national policy task in 2005 to prepare for an aging society, and after two years of research, designed the product. This is the housing pension product sold by the Korea Housing Finance Corporation (KHFC) since 2007.

The KHFC’s housing pension is a lifelong type guaranteed by the government, which is its biggest feature. It is designed so that subscribers can live in their own home for life while receiving a monthly pension. The number of subscribers has steadily increased. At the beginning of the project in 2007, there were only 515 subscribers, but last year it exceeded 130,000. New subscribers are also on the rise. In just last year, 14,670 new subscribers joined. For three consecutive years since 2022, nearly 15,000 elderly people have been subscribing annually.

Subscription is possible when one of the couple is over 55 years old. The collateral housing can be apartments, villas, as well as officetels for residential purposes and senior welfare housing. However, since it is a government-led product, there are restrictions on subscription. First, the combined official property price of the couple’s house must be 1.2 billion KRW or less. Multi-homeowners can also subscribe, but the combined price must not exceed 1.2 billion KRW. Those owning two houses exceeding 1.2 billion KRW can subscribe on the condition that one house is disposed of within three years. In principle, only one house among multiple properties can be used for the housing pension. Also, the subscriber or spouse must actually reside in the house used as collateral.

According to KHFC, as of last year, the average age of housing pension users was 72 years old. The average monthly pension amount was found to be 1.22 million KRW. The structure is such that the higher the house price and the older the age, the higher the pension received. Based on March subscribers, the pension amount ranges from a minimum of 147,000 KRW to a maximum of 4,615,000 KRW depending on house price and age. For example, a 70-year-old elderly person owning an apartment valued at 900 million KRW can receive 2,677,000 KRW monthly. Once the pension amount is set, it does not change. This means that even if the house price falls, the amount guaranteed at the time of subscription is paid as is. Conversely, if the house price rises, the pension does not increase.

The government views the housing pension as a way to simultaneously solve the elderly’s livelihood stability and housing insecurity issues, and is preparing various measures to expand subscribers. Representative measures include lowering the subscription age from 60 to 55 and raising the official property price limit from 900 million KRW to 1.2 billion KRW (approximately 1.7 billion KRW market price), thereby lowering the entry barrier. The total loan limit was also increased to 600 million KRW to raise the pension amount. The methods of providing collateral and receiving pensions have been diversified to broaden subscribers’ choices.

Discussions on revitalizing the housing pension are active in the political arena as well. Kwon Young-se, Emergency Committee Chairman of the People Power Party, recently publicized the abolition of the housing pension’s actual residence requirement. There have also been proposals to remove the housing price ceiling altogether so that anyone can subscribe to the housing pension.

The private housing pension market is relatively underdeveloped compared to the public sector. Hana Bank, Shinhan Bank, and KB Kookmin Bank sell reverse mortgage products in the form of housing pensions, but as of September last year, their loan balances were only about 0.1% of KHFC’s. A financial industry official said, "To meet the increasing demand, the private market must complement the public sector," adding, "The housing pension market needs more diverse options, such as developing products for homeowners with official property prices exceeding 1.2 billion KRW."