ST: S'pore debt levels 'among highest in Asia'

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#1
ST: S'pore debt levels 'among highest in Asia'

Property debts high but households have robust buffer of financial assets: Report

Published on Jul 03, 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.
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.
fiochan@sph.com.sg
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#2
We simply love our properties!!!
My Dividend Investing Blog
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#3
those who got younger family members to take longer term loans, will have problems refinancing when income-weighted age calc kick in.
When loan shorten, monthly payments goes up. if not, stuck at Board Rate interest rate.
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
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#4
Quote: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.

Can't they just normalize with the total no. of household and inflation?

At 2000, no. of households = 915100
Total household debt = 139,273 million
debt per household = $152k
assume 3% inflation for the last 12 years, present value at 2012 = $217k

At 2012, no. of households = 1152000
Total household debt = 262,450 million
debt per household = $228k

Increase by less than $10k.. big deal?
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#5
Is 151% of annual income a lot?

Most of the debts (111%) are mortgage loans, which are payable over 20-30years. Taking 25years average, that will mean 4% of the annual income need to be paid annually for mortgage.

Another bulk will likely be on car, say the rest 40%. And before the new ruling, it is payable over 10years, which is another 4% annually.

Total will be just 10% of annual income need to be used to pay for debts. Not really a lot.

(03-07-2013, 12:36 PM)opmi Wrote: those who got younger family members to take longer term loans, will have problems refinancing when income-weighted age calc kick in.
When loan shorten, monthly payments goes up. if not, stuck at Board Rate interest rate.

The solution is not to do re-financing. Anyway, with increasing measures, the banks may adjust their rates upwards, and it may not be beneficial to refinance in the future.
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#6
(03-07-2013, 02:13 PM)NTL Wrote: Is 151% of annual income a lot?

Most of the debts (111%) are mortgage loans, which are payable over 20-30years. Taking 25years average, that will mean 4% of the annual income need to be paid annually for mortgage.

Another bulk will likely be on car, say the rest 40%. And before the new ruling, it is payable over 10years, which is another 4% annually.

Total will be just 10% of annual income need to be used to pay for debts. Not really a lot.

Is 151% of annual income a lot? The real test is after situation turning bad e.g. loss of income IMO.
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#7
seems like it is indeed no big deal...is this part of a fanning exercise to cool the property?
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#8
(03-07-2013, 09:55 PM)CityFarmer Wrote:
(03-07-2013, 02:13 PM)NTL Wrote: Is 151% of annual income a lot?

Most of the debts (111%) are mortgage loans, which are payable over 20-30years. Taking 25years average, that will mean 4% of the annual income need to be paid annually for mortgage.

Another bulk will likely be on car, say the rest 40%. And before the new ruling, it is payable over 10years, which is another 4% annually.

Total will be just 10% of annual income need to be used to pay for debts. Not really a lot.

Is 151% of annual income a lot? The real test is after situation turning bad e.g. loss of income IMO.

Yes. Those who are cash-strapped will be faced with the problem of paying the loans. If it happens during declining housing values, that will be a double crunch. If interest is to go up to nominal 3.5%, that will be triple crunch.

Further thoughts of the number gave me another perspective. Most people are borrowing 80% of purchase price. For a household which total income is $200,000, buying a $1M property, the loan will be $800,000. That will give a 400% of annual income. So likely the number is skewed due to the few superrich. The situation maybe far worse than it seems... Only question is how much liquidity they are holding...
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#9
When you reached the top of the mountain. You have to come down.
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#10
Playing Devil's advocate here.

A family earning 100k Income can take out a HDB loan on a 380k BTO flat (pay 80k upfront) and have a 300% loan to annual income ratio. The question is whether the debt households take are sustainable relative to their cashflow. Secondly, as for the "astronomical" debt as reported by the news, one question we should ask is how many of these households are taking mortgage that are rates pegged to our CPF-OA and how many % are floating rate (which are more prone to interest rate fluctuations).
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