By Siow Li Sen
SINGAPORE - Singaporeans have never been richer, as they remain tight fisted despite buoyant property prices. Household assets now stand at almost seven times the level of household debts. Households balance sheets have, on the whole, remained strong, supported by the continued broad-based recovery of the Singapore economy, the Monetary Authority of Singapore said in its Financial Stability Review 2010 released yesterday.
Household net wealth - defined as household assets less household debt - stood at an estimated record S$1.156 trillion in the third quarter of this year, and this represents a 29 per cent improvement from the trough in Q1 2009.
Property holdings reached an estimated $651 billion in Q3 2010, up 21 per cent from $537 billion a year ago.
Another factor for rising household net wealth was larger holdings of equity and managed funds, owing to the turnaround in global equity markets in Q3 2010.
Bank savings and deposits alone continue to exceed total household debt.
Aggregate household net wealth stood at 3.9 times gross domestic product in Q3 2010, up from about 3.8 times year ago.
The household debt-to-assets ratio remains relatively low, with household debt about 15 per cent of household assets - below its long-term average of about 18 per cent.
The domestic stock market rebound since early 2009 resulted in share financing loans growing by double digits between Q3 2009 and Q2 2010. But this has since moderated owing to the more subdued performance of the market from Q2 2010.
Growth in share financing loans can be expected to continue, given investors' search for yield and the overall upward trajectory of the domestic and regional stock markets.
But as share financing currently represents less than one per cent of total household debt, this growth is not expected to materially impact household balance sheets or the stability of the banking system.
Other components of household debt showed subdued growth.
Credit card loans growth moderated to 9.3 per cent year on year in Q3 2010, after peaking at 19.5 per cent in Q3 2008.
Car loans growth has been negative since Q2 2009, in line with falling car sales.
Household debt increased at a slower rate than household assets - 10.7 per cent versus 13.9 per cent year on year in Q3 2010. It outpaced household remuneration in 2009 as the downturn constrained wage growth.
As a result, the household debt to remuneration ratio rose slightly from 1.5 times in 2008 to 1.6 times in 2009. However, the ratio still remains below its long-term average of 1.8 times. It may remain stable or moderate slightly this year, as wage growth is likely to pick up with the continued economic recovery and high labour force participation.
Average monthly earnings have been on a rising trend, registering 5.8 per cent year-on-year growth in June 2010 after contracting 1.6 per cent in December 2009.
But MAS has warned that household borrowing could accelerate, given the strong economic recovery and if expectations of a sustained period of low interest rates become ingrained.
'For now, the risk of households over-extending themselves appears to be mitigated by supportive labour market conditions, even as bank lending remains prudent,' it said.
'Borrowers, particularly households that are or could become financially over-stretched, should understand the risks associated with an eventual rise in interest rates.
'Banks on their part should conduct forward-looking assessments of their consumer credit exposures, including bank-wide and portfolio-specific stress tests, to evaluate such risks.'
This article was first published in The Business Times.