S’pore households among most heavily-indebted in Asia

SINGAPORE — Households in Singapore owe more than most of their regional counterparts as a proportion of gross domestic product, a research study has shown, but debt servicing is still manageable as the Government has introduced measures to prevent over-borrowing.

Household debt currently accounts for around 75 per cent of Singapore’s GDP, up from 55 per cent in 2010, according to the Standard Chartered research report on Asian leverage released yesterday. This debt level is higher than in major Asian economies such as China (20 per cent), Japan (66 per cent) and Hong Kong (60 per cent), but lower than Malaysia (79 per cent) and Australia (109 per cent).

Australia has the highest household leverage, while the Philippines (6 per cent) has the lowest.

Singapore’s high household debt is mainly due to the accelerated growth in home loans that form the bulk of the borrowing — at 74 per cent of total consumer loans.

“Housing loan growth has been relatively rapid at a compound annual growth rate of 12.1 per cent from 2000 to 2012; this has accelerated to 15.8 per cent CAGR for 2006 to 2012 … The price-to-income ratio for HDB flats has risen over the years, with lower-income groups facing relatively higher prices,” the bank said in its report. It added that threats of a continued rise of property prices and higher interest rates add to the risk of households over-stretching themselves.

“The likely increase in loan amounts as housing prices rise means that if the economy slows and unemployment rises, debt servicing may become difficult for people who are over-leveraged and lose their jobs,” Standard Chartered said.

The report came just days after the Monetary Authority of Singapore (MAS) announced tighter property loan rules to “encourage prudence among borrowers” and help strengthen credit underwriting practices by financial institutions.

Under the new Total Debt Servicing Ratio (TDSR) framework that took effect last Saturday, financial institutions must ensure property loans that they grant do not push a borrower’s total debt obligations to above 60 per cent of his or her gross monthly income.

However, Standard Chartered said that the low average loan-to-value ratio of 48 per cent for housing loans moderated the risk of over-leverage in the household sector. The Government has also taken steps to cool the housing market, including higher additional buyer stamp duties and larger down payments.

The Government also announced its intention to reduce the price-to-income ratio for Build-To-Order flats in non-mature estates to about 4.0 by de-linking primary market prices from HDB resale prices.

“Measures targeted at the property market have been less effective so far given the continued rise in prices. However, we are now detecting some slowdown in property transactions with the latest round of measures, and we expect property prices to stabilise,” said Standard Chartered. “We believe these measures are prudent and will limit systemic risk in the event of an economic deterioration.”

At a broader level that includes debt from all sectors, China’s leverage is the most worrisome in the region, according to the report.

“The concern arises not from its overall credit-to-GDP ratio of 214 per cent, which places it only fifth among the Asian countries in our study. Rather, the concern is that debt is heavily concentrated in the non-financial corporate sector.”