Sharp rise in S’pore household debt

Vikram Khanna
Business Times
28 March 2003

Liabilities hit 174% of income in 2000 against 118% in ’95

(SINGAPORE) Borrowing by Singapore households has risen sharply since 1995, making the nation’s household sector among the most heavily indebted in the world, relative to disposable income and GDP, a government study shows.

The Department of Statistics study – Wealth and Liabilities of Singapore Households – is the first to provide a detailed breakdown of the assets and liabilities of local households.

It shows that their financial liabilities soared from 118 per cent of personal disposable income in 1995 to 174 per cent in 2000. The latter figure is substantially higher than those for major economies such as the UK (116 per cent), Japan (100 per cent), the US (90 per cent) and France (54 per cent).

Relative to GDP, Singapore’s total household-sector financial liabilities are also the highest, at 88 per cent. Moreover, during 1995-2000, these liabilities grew faster than in any other country covered in the study. And at the end of the period, financial liabilities per household were higher in Singapore than in the other countries.

The study attributes the rapid growth of Singapore’s household debt to ‘the sharp increase in public housing loans over the period’, adding that it also reflects Singapore’s high level (92 per cent) of home ownership, with about 85 per cent of the population living in public housing.

It shows that between 1995 and 2000, household liabilities for HDB loans doubled relative to personal disposable incomes and GDP. Private housing loans and personal and other loans also increased over the period, but not as fast.

The study’s findings are similar to those in a recent report on the Singapore economy by US investment bank Goldman Sachs, which estimated that Singapore’s household sector debt relative to disposable income had risen from 122 per cent in 1996 to 174 per cent at present.

In an interview with BT, the author of the Goldman study, Adam Le Mesurier, said: ‘The important point to note is that in Singapore the debt to disposable income ratio has gone up while property prices have been falling – unlike in other countries like the UK and the US, where property prices have been rising.’

The Goldman study cautioned about the dangers of the ‘high leverage’ of Singapore’s households, which ‘hinders the ability of relative prices to adjust efficiently internally’.

In other words, partly because of this high leverage, prices of properties – and especially HDB properties – cannot be permitted to correct quickly because that might impact badly on household balance sheets and consequently, crimp consumer spending.

The Singapore government study shows that at the end of 2001, 48.2 per cent of the Singapore household sector’s assets comprised property assets, and 72 per cent of the sector’s liabilities were in mortgage loans.

It notes that this concentration of household assets and liabilities in residential properties and mortgages ‘may present liquidity risk for households, as property assets are less liquid’.

The other key findings of the government study are that:

– At the end of 2001, 42 per cent of CPF funds were invested in property.

– The Singapore household sector’s net wealth as a percentage of personal disposable income was 714 per cent at end 2000 – substantially higher than Japan (633 per cent), the UK (631 per cent), France (525 per cent) and the US (471 per cent).

However, as a percentage of GDP, net household wealth in Singapore was 362 per cent – a level closer to the other countries.

The net wealth of Singapore households – the difference between household assets and liabilities – declined by about $6 billion, or 1.1 per cent, to about $565 billion at the end of 2001 compared with the previous year, ‘due largely to capital losses arising from the fall in equity prices, even as households continued to save’. Personal saving increased substantially, by 23 per cent to $19.5 billion at the end of 2001, compared with a year earlier.

As at the end of 2000, 80 per cent of Singapore’s household financial wealth was in ‘less risky’ traditional assets such as bank deposits, life insurance and pension funds. This proportion was about the same as in Japan, but was significantly higher than in Italy (31 per cent), the US (42 per cent) and France (55 per cent). In the latter group – especially Italy and the US – higher proportions of household financial assets were in shares and securities. The relatively low exposure of Singapore households to shares means ‘that they would be less vulnerable to declines in equity prices’, the study says.

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