The Economist: Singaporeans are among the most indebted in Asia

[Sammyboy RSS Feed]

An honorable member of the Coffee Shop Has Just Posted the Following:

FORGET the stereotypes of Singaporeans as a cautious and conservative bunch. It’s now “spend, spend, spend” in the small but wealthy city-state, where old scruples about going into debt seem to have been cast aside. Singaporeans are among the most indebted in Asia, relative to income. According to Standard Chartered, Singapore’s households have loans averaging 151% of annual income, second only to Malaysia’s in South-East Asia.

Housing debt in particular has soared, rising by 18% a year over the past three years; home loans as a share of GDP have jumped from 35% to 46% over the same period. According to figures released this week by Credit Bureau Singapore, the number of borrowers with at least two mortgages as well as other loans has risen by 78%, to 48,782, since 2008. In a population of just 5m, these numbers count.

Rock-bottom interest rates are the reason why people are taking on debt as never before. Such behaviour is rational enough but many worry about the systemic consequences of a swift build-up of debt. The local housing market, which accounts for most of the loans, looks overheated. Despite seven rounds of “cooling” measures by the authorities to try to slow the relentless spiral of property prices, demand remains strong as people just borrow more to buy their dream condo or government-built flat.

Adding to the problem is the wall of money coming Singapore’s way as the city-state establishes itself as a global centre for managing money (see chart). Assets under management in Singapore rose by 22% to S$1.63 trillion ($1.29 trillion) in 2012, according to the Monetary Authority of Singapore (MAS). Most of this money is invested in the wider region, but even if only a small proportion winds up in Singaporean real estate, as it will do, it adds to the upward pressure on property prices.

Singapore’s banks look well-capitalised. One of them, DBS, points out that although Singapore’s debt has risen faster than, say, Hong Kong’s, Singapore’s GDP per person has grown much faster, too. The danger, warns Ravi Menon, the head of the MAS, will come when interest rates move up again. His concern is that borrowers have been lulled by low interest rates over a long period of time, and could be woefully unprepared for rate rises. This, he says, poses “significant risks” to household balance-sheets. According to the MAS, 5-10% of borrowers may already have accumulated too much debt, defined as spending over 60% of a monthly salary in debt repayments. If interest rates rose by three percentage points, then 10-15% of borrowers could be at risk.

These are the sort of figures that banking crises are made of. Moody’s, a ratings agency, recently downgraded its outlook on Singapore’s banks from “stable” to “negative”. Mr Menon asserts that Singapore bank lending is still “mostly prudent”. But he also acknowledges that with so much demand for borrowing, “there is some laxity creeping into the system.”

Print edition ECONOMIST August 3 2013


Click here to view the whole thread at www.sammyboy.com.