Singapore property debt levels ‘among highest in Asia’, but still lower than Malaysia

By Melissa Lin (The Straits Times)

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 in Singapore 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 S$390,000 (RM973,400) loan for 30 years on a Housing Board flat would climb from about S$1,200 (RM3,000) to about S$1,800 (RM4,500), Lee said.

Assuming average monthly incomes for the 10 per cent of households just below the middle line in Singapore stay at about S$7,600 (RM18,970), 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. — The Straits Times / Asia News Network