Property debts high but households have robust buffer of financial assets: Report
By Fiona Chan, The Straits Times, 3 Jul 2013
SINGAPORE households are among the most indebted in Asia relative to what they earn, according to a Standard Chartered report this week.
Households had borrowings worth 151 per cent of their annual income last year, second in the region only to Malaysia, with debt at 182 per cent of income.
This is mainly because consumers here take on large dollops of property debt, amounting to 111 per cent of household income - the highest level in the region, Stanchart said.
On the bright side, households have a robust buffer of financial assets from high savings, so their debt levels are relatively low compared to these assets, the bank added.
"We are not concerned about household solvency in Singapore," it said.
Thanks to low interest rates, the repayments that Singapore households make on loans are also among the lowest in the region as a share of income.
However, Stanchart warned that as rates rise, debt servicing may become more difficult for home owners who are over-leveraged, although current debt burdens are still manageable.
Indeed, Stanchart's data shows that the overall debt service ratio for Singapore households has been rising since 2008. But they remain moderate, with total debt repayments coming up to only 13 per cent of total household incomes, the bank said.
This is lower than in Malaysia, South Korea and Australia, although higher than in the Philippines, Japan, Indonesia, India, China and Taiwan, which have debt service ratios between 2 and 7 per cent, it added.
But the report also highlighted the danger of the rapid increase in debt levels recently.
Singapore's housing loans grew at an annual rate of 12.1 per cent between 2000 and 2012, but picked up pace in recent years to grow at an annual rate of 15.8 per cent between 2006 and 2012.
"If the economy slows and unemployment rises, debt servicing may become difficult for people who are over-leveraged and lose their jobs," said Stanchart economist Edward Lee.
"A rise in interest rates from historically low levels could have a similar effect."
As an example, if home loan rates rise from 0.9 per cent to 3.9 per cent, the monthly repayment for a $390,000 loan for 30 years on a Housing Board flat would climb from about $1,200 to about $1,800, Mr Lee said.
Assuming average monthly incomes for the 10 per cent of households just below the middle line in Singapore stay at about $7,600, their debt service ratio for this loan will rise from 16 per cent to 24 per cent.
The Monetary Authority of Singapore has recognised the risk of rising rates and last week introduced caps on total debt service ratios for property buyers. They can only take new mortgages where the total monthly repayments, including other outstanding debt obligations, do not exceed 60 per cent of their monthly income.
Economists such as Bank of America Merrill Lynch's Chua Hak Bin believe that Singapore's debt levels, while high relative to Asia, are not at a dangerous point.
Economists such as Bank of America Merrill Lynch's Chua Hak Bin believe that Singapore's debt levels, while high relative to Asia, are not at a dangerous point.
He noted that risks from rising debt are countered by "reassuring signs" such as falling Housing Board loans, rising Central Provident Fund balances, rising deposits, and hints that overall mortgages will start to grow more slowly.
"If carefully managed, risks from rising household and mortgage debt should be contained and will not escalate into a more systemic problem," he said.
"If carefully managed, risks from rising household and mortgage debt should be contained and will not escalate into a more systemic problem," he said.
Household debt worries in S. Korea, Malaysia and Singapore
Among highest in Asia, further rise will cause vulnerability during crises
By Yong Yen Nie, The Straits Times, 13 Jul 2013
HOUSEHOLD debt in Malaysia, Singapore and South Korea are among the highest in Asia and stricter measures are needed to prevent it from reaching worrying levels, regional economists say.
Among highest in Asia, further rise will cause vulnerability during crises
By Yong Yen Nie, The Straits Times, 13 Jul 2013
HOUSEHOLD debt in Malaysia, Singapore and South Korea are among the highest in Asia and stricter measures are needed to prevent it from reaching worrying levels, regional economists say.
While monetary authorities have been proactive in cooling off property lending, thus tempering household debt rise, a further ballooning in such borrowing will make these countries, particularly Malaysia, susceptible to financial crises, they warn.
These countries are in the spotlight recently as their household debt - borrowings by individuals largely to finance mortgages, credit card spending and cars - has reached between 75 per cent and 85 per cent of gross domestic product (GDP). A large chunk of the debt is tied to property loans.
By contrast, China, India and Indonesia have only about 17 per cent to 20 per cent of household debt-to-GDP and Thailand's is at a manageable 68 per cent.
Economists at Standard Chartered also warned last week that Indonesia's household debt may be a concern in the medium term as this segment, which grew 13.1 per cent annually in the past decade, has outpaced its average investment growth of 7.6 per cent.
"Excessive high household debt could balloon into a larger systemic issue down the road," said Dr Chua Hak Bin, South-east Asia economist at Bank of America Merrill Lynch. "This is especially since interest rates will likely be much higher than current levels in a few years' time, as the US Federal Reserve unwinds its quantitative easing programme."
With the United States economy seen to be recovering recently, economists expect monetary authorities in Asia to begin raising interest rates by mid-2015, marking the end of cheap borrowing which has led to increased debt from growing investments and consumption.
While these factors drive growth, economists worry that over-leveraged countries will be vulnerable to financial shocks, like the 1997-1998 Asian financial crisis that wiped billions off central banks' foreign reserves.
A Standard Chartered report last week showed borrowers in Malaysia, South Korea and Singapore have significantly higher loans, borrowing between 135 per cent and 177 per cent of their annual incomes, while Thailand's ratio is at 91 per cent.
Mr Leong Wai Ho, senior regional economist at Barclays Capital, said Asian regulators have not sat still. "The central banks are mindful that the higher interest rates will affect people's ability in servicing loans should they over-borrow and so, they are taking pre-emptive measures now."
Malaysia, which saw its household debt climb 12 per cent annually for the past five years, last week capped the repayment tenure of personal loans and property loans at 10 years and 35 years.
Two weeks earlier, Singapore also restricted its lending rules by disallowing monthly home loan instalments from exceeding 60 per cent of income.
South Korea has not tightened its lending rules but Mr Leong said it is not facing high risks yet as its workers are largely unionised and so have greater employment protection and, thus, the ability to service loans.
RAM Holdings chief economist Yeah Kim Leng said Malaysia needs stronger measures as its borrowers have weaker capabilities to repay loans due to slower income growth. "Malaysia needs to increase the real property gains tax and stamp duty on sale of properties to dampen speculative activities that cause asset bubbles."
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