Rising household debt in S’pore worrying: MAS

Singapore’s central bank said rising household debt in the city-state is worrying, and that it is “important to act now to limit build-up of leverage”.

Housing loans account for 45 per cent of GDP, up from 35 per cent three years ago. The rising levels of borrowings in the local real estate sector is a concern, said the Monetary Authority of Singapore (MAS).

Ravi Menon, managing director of the MAS, said that 5 to 10 per cent “have probably over-leveraged their property purchases”.

He said: “Many households could have over-extended themselves, fuelled by low interest rates and stretched loan tenures. The vast majority of mortgage loans in Singapore are on floating rate packages, which means households will face higher monthly repayments when interest rates normalise.”

For example, they have total debt service payments at more than 60 per cent of their income.

Mr Menon added that if mortgage rates were to rise by 3 percentage points, the proportion of borrowers at risk could reach 10 to 15 per cent.

Speaking at a press briefing, Mr Menon also said the Singapore economy will “comfortably meet” the growth forecast of 1 to 3 per cent this year.

According to the central bank, “GDP growth should pick up over the course of the year amid an improving external environment”.

Snigapore’s economy grew 1.3 per cent in 2012.

The MAS said the forecast for headline inflation will be revised down to 2-3 per cent, from 3-4 per cent previously. The core inflation forecast for 2013 remains at 1.5-2.5 per cent.

Mr Menon said that this is the first time in three years that CPI inflation has come down closer to historical trends and within MAS’ comfort range.

Headline inflation was elevated at 4.6 per cent last year due to higher residential property rentals and car prices, while core inflation, which excludes accommodation and private road transport, averaged 2.5 per cent in 2012.

The MAS had paid-up capital of S$25 billion as at 31 March 2013, unchanged from the end of the previous financial year, according to its annual report.

The MAS does not hand over any profits to the government during the financial year when there is no accounting profit.

The Singapore central bank made a net loss of S$10.61 billion in fiscal year 2012/13, reversing from the gain of S$2.77 billion in the previous financial year.

The MAS said its good investment returns over the year were more than offset by the strength of the Singapore dollar.

“This is an issue of reporting currency. If we had reported our profit and loss in international currency, it would show a healthy profit,” said Mr Menon.

Total assets managed by Singapore-based asset managers were S$1.63 trillion as of the end of last year, 21.5 per cent percent higher year-on-year due to “strong inflows and higher market valuation”.

Source : Channel NewsAsia – 23 July 2013

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