Tag Archives: Federal Reserve System

Household debt soars due to high home prices

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

Tighter mortgage rules better for current property market

The current low mortgage rate is one of the main contributors to the stubbornly high property prices here.

In the United States, the average mortgage rate is about 3.65 per cent despite the Federal Reserve maintaining its interest rate at near zero. Meanwhile, Hong Kong recently raised the risk weighting for new mortgages, and there has already been an impact on interest rates.

It would be good if the Monetary Authority of Singapore (MAS) could also administrate a gradual increase in mortgage rates here, to increase the holding cost of buying investment properties.

At current property prices and with rental yields expected to soften, a gradual increase in mortgage rates would have an immediate impact on property prices. By tightening mortgage rules now, the MAS would have better control over the stability of our financial institutions and our economy should there be sudden increases in interest rates in the near future.

Also, foreigners are more willing to pay the Additional Buyer’s Stamp Duty and park their money in Singapore’s real estate than buying risky investment assets elsewhere.

Just having a 10 per cent share of foreign buyers of properties here could provide a false sense of positive market sentiment towards our real estate. Developers would be quick to exploit more foreign buying to support property prices.


Source : Today – 2 May 2013