Property cooling measures are main reason for the slowdown.
Growth in the home loans market slowed to 12 percent in September, down from the peak growth of 22 percent in September 2010, according to the annual financial stability report released by the Monetary Authority of Singapore (MAS) and reported in the media.
The MAS report also revealed that a total of S$8.8 billion in new mortgages were granted in Q3 this year, compared to last year’s S$13.5 billion.
“The share of new housing loans with loan-to-value (LTV) ratios higher than 70 percent has also fallen from a peak of 77 percent in Q2 2010 to stabilise at about 66 percent since 2012. The average LTV ratio of outstanding housing loans was 47.3 percent as of Q3 2013. The asset quality of property-related loans remains robust with the NPL ratio being less than 0.5 percent as of Q3 2013,” the report said.
This shows that the property cooling measures implemented by the Singapore government is slowing the growth of household debt, especially for mortgages.
“The series of cooling measures, especially with the debt servicing ratio, has been effective to date. It has led to moderation in terms of housing loans growth and also a moderation of property prices. So we believe that the government stands ready to implement more cooling measures until their price stabilisation objectives have been met,” noted Ivan Tan, Director of Financial Institutions Ratings at Standard & Poor’s.
Aside from that, Singapore’s household net wealth – defined as household assets minus household debt – has climbed at an average rate of 9.1 percent per annum in the last ten years. In fact, it reached S$1.44 trillion in Q3 2013, or four times the country’s GDP.
The primary reason for this significant increase is that property assets comprise a huge portion of household assets, and property prices have surged in the past few years.
“On an aggregate basis, the value of property assets, estimated at S$838 billion in Q3 2013, accounted for about half of household assets. This share has remained broadly stable since 2010. The value of property assets has increased by an average of 13 percent year-on-year since Q1 2010,” MAS said.
However, the value of financial assets has outpaced the growth of property assets since Q3 2012 due to a slower growth in property prices.
“As of Q3 2013, the value of financial assets stood at S$875 billion, up 7.7 percent from a year ago. In comparison, the value of property assets was 5.8 percent higher than that of the corresponding quarter last year,” the central bank added.
Moreover, the growth in the value of financial assets such as deposits, cash and Central Provident Fund (CPF) savings remained healthy at an annual growth of around 10 percent in Q3.
Although the growth of Singapore’s household debt has slowed in recent quarters, MAS pointed out that mortgages account for 74 percent of total household debt. Nevertheless, this proportion is still roughly similar to that of other developed countries such as the US, the UK, Australia, Taiwan and Hong Kong. The next largest component after mortgages is car loans, which comprised 4.6 percent of total household debt in Q3.
However, some Singaporean families who may have over-borrowed by taking out a bigger car loan or unsecured credit remain vulnerable should interest rates spike, cautioned MAS.
“The generally benign environment of moderate economic growth, tight labour market conditions and low interest rates could change in the period ahead. These could pose strains on some households,” it said.
In addition, the average outstanding debt owed by individuals seeking credit counselling increased from S$69,600 to S$79,700 in the in the last four years, revealed data from Credit Counselling Singapore (CCS).
The number of individual bankruptcy orders has also been rising from roughly 1,500 cases in 2011 to around 1,700 cases in 2012. This trend continued in the first nine months of 2013 compared to the same period a year ago.
“Over-leveraged individuals and households would be more vulnerable to adverse shocks. If the economy slows down and labour market conditions become less favourable, the property cycle could turn. Some households’ financial resilience could deteriorate – the value of their assets could fall even as their debt-servicing burdens increase in tandem with rising interest rates as advanced economies embark on monetary policy normalisation,” explained MAS.
Furthermore, MAS believes that property prices are still too high even though the government’s cooling measures have curbed the sector’s momentum. As a result, the government will continue to monitor the market and act if necessary.