MAS advises Singaporeans to exercise prudence when buying property or taking up debt

2 Dec 2020

The recovery in the labour market is expected to be drawn out. This comes as the economy’s uncertain outlook could have “dampening effects on income streams”, while the resident unemployment rate will likely “remain elevated” in 2021.

The Monetary Authority of Singapore (MAS) has called on households to remain prudent when taking up new debt or acquiring a property, reported Channel News Asia (CNA).

This comes as the economy’s uncertain outlook could have “dampening effects on income streams”, while the resident unemployment rate will likely “remain elevated” in 2021. The recovery in the labour market is also expected to be drawn out, it said.

MAS acknowledge that some homeowners may find it hard servicing their mortgages. In fact, it had worked with financial industry to introduce relief measures earlier in the year, with the measures recently extended to help cash-strapped business and individuals until next year.

As of the third quarter of 2020, around 36,000 mortgage relief applications had been approved, with 8,700 individuals provided with revolving unsecured debt relief.

“Given the uncertain economic outlook, households should avail themselves of these support measures if needed and factor in possible volatility in future income streams when considering large purchases and loans,” said the central bank in its annual financial stability review as quoted by CNA. 

Recommended article: 4 Financial Tips for Managing Your Property Amid the COVID-19 Crisis

“Whenever possible, they should also continue servicing or consolidating their existing obligations to enhance resilience against unexpected shocks.”

At the onset of the pandemic, Singapore’s household balance sheets were “relatively healthy”, showed the report.

Household net wealth, for instance, rose 4.4 times of gross domestic product during Q3 2020 from 3.8 times in Q3 2019.

“While the increase is partly due to the fall in GDP, asset values continued to hold up despite the economic slowdown,” said MAS.

“Further, liquid assets such as cash and deposits continued to exceed total liabilities, providing households a financial buffer against income shocks.”

The central bank’s simulations indicated that the debt servicing burden of Singapore households remain manageable under stress.

MAS noted that government transfers and relief measures helped mitigate the impact of a sharp drop in employment and income during the first half of 2020.

Suggested read: Why More Homeowners Are Refinancing Now, Especially Thanks To COVID-19 Property Reliefs

However, leverage risk edged up even as growth in overall household debt has moderated.

The central bank said that while aggregate household debt continued to fall since the roll out of cooling measures in July 2018, nominal GDP declined by a bigger margin due to the pandemic.

This resulted to an increase in household debt as a percentage of GDP – from 63.1% in Q1 2020, to 65% in Q2 2020 before reaching 67.1% in Q3 2020.

Other indicators mentioned include the housing loans’ credit risk profile, which has remained sound as macro-prudential measures encouraged prudent borrowing and improved equity buffer.

But given that household resilience is linked to income and employment, credit risk for housing loans may further increase should the economic downturn persist, said MAS.

It noted that the unsecured credit charge-off rate, which is a leading indicator for housing loans’ credit quality, has increased in Q3 2020, indicating that more household may face difficulties in paying their housing loans. 

“Close monitoring of housing loans from more vulnerable households is necessary in the upcoming months given the expectation that the labour market recovery will be protracted,” said MAS.

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