Standard Chartered Bank has reported that household debt currently accounts for around 75 per cent of Singapore’s gross domestic product, up from 55 per cent in 2010 (“S’pore households among most heavily-indebted in Asia, July 3). Similar observations were flagged by UBS’ Regional Chief Investment Officer last year.
Many Singaporeans have had it good even with the last technical recession, but interest rates are now creeping up, economic woes for Europe remain pressing, while the United States’ fragile recovery has many years to go. China is showing signs of struggle, as is India.
While South-east Asia is seemingly doing well, the state of major global economies will surely continue to weigh on us.
Against this backdrop, the average household debt continues to climb due to high car and property prices. These are large, long-term financial commitments and, when the next economic downturn comes around, many leveraged borrowers will suffer, as will banks and other businesses generally.
Many forget that asset values can decline sharply in bad times — by as much as 30 to 50 per cent, as seen during the post-Asian financial crisis days. Households could potentially suffer negative equity scenarios in such circumstances.
The unprecedented supply of new residential property coming on stream, coupled with the record-high property prices today, will mean a sharp drop in property prices should our rosy economic circumstances turn hazy or bleak.
Raymond Koh