The rapid rise in Singapore’s household debt, coupled with high residential prices, could make the city-state vulnerable to asset deflation, a reduction in income and a rise in unemployment if there is a slowdown in global economic markets, according to UBS Wealth Management.
Singapore’s household debt, or the overall consumer loans lent by local banks, reached 279 percent of the overall GDP for Q1 2013, up from 177 percent during the same period in 2007 and 198 percent in the first quarter of 2009 following the 2008 financial crisis.
Notably, 80 percent of the household debt in Singapore is accounted for by housing loans and is why it rose sharply from 2007 as a result of spiralling property prices since 2009, noted Kelvin Tay, UBS Wealth Management’s Regional Chief Investment Officer for Southern Asia-Pacific.
“With (household debt) at such significant levels, it will be difficult for the government or policy makers to stimulate demand to offset the sluggish exports we are currently experiencing.”
This situation has been worsened by panic selling of risk assets like Asian local currency bonds and US high yield bonds, which was triggered by signs that the US Federal Reserve will scale-down its third round of quantitative easing (QE3).
“Given the sharp rise in credit growth over the last few years, I would not be surprised if an increase in interest rates is followed by deterioration in the loans portfolio of banks and other financial institutions; this would in turn lead to a tightening of credit supply and a higher cost of financing for credit in general,” Tay added.
Source – PropertyGuru – 28 Jun 2013