MAS review shows household debt rising, but savings piling up faster; cautions that risks remain
[SINGAPORE] Singapore households have been given a clean bill of health as far as their debt is concerned. Despite warnings of an increasing exposure to mortgages, net wealth has grown robustly over the past decade and stands at about four times GDP, according to the Monetary Authority of Singapore Financial Stability Review 2013.
While household debt continues to increase, savings are piling up faster and massive cash deposits outweigh total liabilities, the review showed yesterday.
Measures to cool the residential property market are having a significant impact, too.
"However caution is in order as uncertainties and risks remain," MAS warned.
"Some households or individuals could also have overextended themselves in other ways, such as taking on bigger motor vehicle loans and unsecured credit," it said.
Household net wealth (defined as household assets less household debt) has grown at an average rate of 9.1 per cent per annum in the past 10 years. In Q3 2013, household net wealth was $1.44 trillion - four times GDP and up 6.5 per cent from a year ago. This means the Republic's household sector net wealth relative to GDP is broadly comparable to other advanced economies, it said.
Property assets account for a large share of household assets, and property price increases have been the key driver of the significant rise in household net wealth over the past few years.
On an aggregate basis, the value of property assets, estimated at $838 billion in Q3 2013, accounted for about half of household assets. This share has remained broadly stable since 2010. The value of property assets has increased by an average of 13 per cent year on year since Q1 2010.
Since Q3 2012, the value of financial assets held by the household sector - which comprise about half of household assets - has increased more quickly than the value of property assets. This is partly because of a slowdown in the pace of property price increase, even as financial markets have been buoyant for the most part.
In Q3 2013, the value of financial assets was $875 billion, up 7.7 per cent from a year ago. In comparison, the value of property assets was 5.8 per cent higher than a year earlier.
Singaporeans continue to be massive savers.
"The growth in the value of liquid financial assets such as cash and deposits, and Central Provident Fund savings has remained strong, at about 10 per cent y-o-y growth in Q3 2013," it said.
Even as debt has risen, along with worries that housing oversupply may lead to home prices falling as much as 10 per cent, cash alone exceeds household debt by more than 10 per cent.
Household sector debt has trended up alongside the increase in household sector assets and net wealth over the past few years, though the pace of increase has slowed markedly in recent quarters.
The household debt-to-income ratio has risen from a low of 1.9 times in 2008 during the Lehman crisis to 2.1 times in 2012. In addition, household debt has grown more quickly than household assets since Q2 2011. In Q3 2013, household debt grew by 7.9 per cent year on year, while household assets grew by 6.8 per cent.
Housing loans account for about three-quarters of total household liabilities, and could be a significant source of risk for households, MAS said.
This proportion is broadly comparable to that of several other economies, including Hong Kong, Taiwan, Australia, the US and UK.
However, following successive rounds of property-related measures, the credit profile of housing loans has improved, it said.
The next biggest component after housing loans is motor vehicle loans, which constituted 4.6 per cent of household liabilities in Q3 2013. The average motor vehicle loan quantum increased to about $90,000 last year from about $40,000 in 2006.
"The generally benign environment of modest economic growth, tight labour market conditions and low interest rates could change in the period ahead," the Review warned.
Data from Credit Counselling Singapore showed that the average outstanding debt owed by individuals seeking credit counselling has increased 15 per cent over the past four years, from $69,600 to $79,700.
The Review revealed that number of individual bankruptcy orders made has risen, from about 1,500 cases in 2011 to about 1,700 cases in 2012.
"This trend has continued for the first three quarters of 2013 compared to the same period last year," it said.
Over-leveraged individuals and households would be more vulnerable to adverse shocks. "If the economy slows down and labour market conditions become less favourable, the property cycle could turn," it cautioned. Some households' financial resilience could deteriorate - the value of their assets could fall even as their debt servicing burdens increase in tandem with rising interest rates as advanced economies embark on tapering, it said.
The current economic outlook is moderately upbeat.
"Singapore's economic growth momentum has experienced swings through 2013, alongside changes in global demand conditions and general sentiment. While a continued recovery in the external environment should provide some upside momentum for Singapore's economic growth into 2014, several risks remain.
"All factors considered, the Singapore economy should achieve growth of 3.5-4.0 per cent for 2013, and 2.0 per cent-4.0 per cent for 2014."