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Wages keeping pace with household debt

Household balance sheet strengthened by rising property, equity prices

SINGAPOREANS are a conservative lot. Despite strong wage growth, they are careful about borrowing too much.

And with strong appreciation in property prices, the negative housing equity situation continues to improve.

Household debt of $157.9 billion as a share of wages has continued to fall, from 195 per cent in 2005 to 181 per cent in 2006, according to the Monetary Authority of Singapore’s 2007 Financial Stability Review.

Households play an important role in the banking system as depositors and borrowers. Household deposits make up around half of domestic non-bank deposits and loans to households account for about half of domestic non-bank loans.

Rising property and equity prices have strengthened the household balance sheet, it said. In addition, wage growth has kept pace with growth in household debt.

Household debt grew in Q2 2007, but at a slower pace than remuneration and household assets.

As a share of gross domestic product (GDP), household debt has also fallen, from 81 per cent in Q4 2005 to 74 per cent in Q4 2006 and 71 per cent in Q2 2007.

‘Notwithstanding the strong economic growth and therefore positive consumer sentiment, loan growth underlying spending on large items such as cars and homes has been moderate,’ it said.

‘Indeed, housing loans grew 1.3 per cent year-on-year and growth of car loans was flat, compared to wage growth

of 8.5 per cent in second quarter 2007,’ it said.

But home loans growth has picked up considerably since then and in October accelerated to 14.4 per cent from a year ago. Car loans continued to shrink, down 1.8 per cent, their fourth consecutive month of contraction.

The MAS said there is some concern with stronger credit card loans, which rose 14 per cent in Q2 2007, although they currently constitute only about 3 per cent of total household borrowing.

Here, too, consumer spending seems to have moderated with credit card loans slowing to 11.5 per cent in October.

In addition, credit card charge-off rates have been falling.

Share financing provided by banks has shown even bigger increases but comprises only about one per cent of total household loans.

Not surprisingly, individual bankruptcies per quarter and non-performing loan ratio of loans to households have been falling this year.

Assets have continued to outpace liabilities in growth, resulting in net household wealth growing by 19 per cent year-on-year in Q2 2007 to $894 billion, or about four times the GDP.

The fast pace of the appreciation in the value of property and equity has also meant that net wealth has increased.

Investment assets were not the only factors behind the asset build- up. Cash and deposits also grew by a significant 18 per cent from Q2 2006 to Q2 2007. Cash and deposits alone have continued to exceed total liabilities.

Property prices have been a key driver of growth in asset value, with prices of private properties rising by 27 per cent year-on-year and those of Housing and Development Board (HDB) resale flats by 12 per cent year-on-year in Q3 2007.

A recent MAS survey of the six banks that account for almost the entire housing loans market shows that negative equity for private residential properties fell to 2.4 per cent of the total value of outstanding mortgage loans in September 2007, compared with 4.7 per cent a year ago.

Similarly, in terms of the number of mortgage accounts, 2.5 per cent were in negative equity in September 2007 compared with 5.1 per cent a year earlier.


Source: Business Times 4 Dec 07

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