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SINGAPORE: Most households in Singapore remain financially resilient amid the COVID-19 pandemic, although those who are highly leveraged or employed in the worst-hit sectors may be more vulnerable as economic uncertainties persist, said the the country’s central bank on Tuesday (December 1).
In its annual financial stability review, the Monetary Authority of Singapore (MAS) also urged households to exercise prudence when incurring new debt or committing to the purchase of property.
He noted an uncertain outlook for Singapore’s economy that “could have moderating effects on income flows.” He also expects resident unemployment to “stay high” next year and the job market recovery to continue.
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MAS said it recognizes that some homeowners may face difficulties paying their mortgages and has worked with the finance industry to implement relief measures earlier this year. These measures were recently expanded to support cash-strapped individuals and businesses through next year.
Approximately 36,000 applications for mortgage relief have been approved and 8,700 people received revolving relief from unsecured debt as of the third quarter.
“Given the uncertain economic outlook, households should take advantage of these support measures if necessary and take into account possible volatility in future income streams when considering large purchases and loans,” the central bank said in its report.
“Wherever possible, they should also continue to meet or consolidate their existing obligations to improve resilience to unexpected shocks.”
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“RELATIVELY HEALTHY”
The report said Singapore’s household balance sheets were “relatively healthy” at the start of the pandemic, reflecting financial buffers accumulated over the years.
Household net wealth rose to 4.4 times gross domestic product in the third quarter from 3.8 times a year ago, he cited as an example.
“While the increase is partly due to the drop in GDP, asset values continued to hold up despite the economic slowdown,” MAS said.
“Additionally, liquid assets, such as cash and deposits, continued to exceed total liabilities, providing households with a financial cushion against income shocks.”
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Their simulations also suggest that Singapore’s household debt service burden remains manageable under stress.
Government transfers and aid measures have mitigated the impact of a sharp drop in employment and income in the first half of the year, the central bank added.
SOME RISKS
But the risk of leverage has risen even as overall household debt growth moderated.
MAS said aggregate household debt has continued its downward trend since the introduction of the cooling measures in July 2018, but nominal GDP fell by a larger margin due to the pandemic.
As a result, household debt as a percentage of GDP increased from 63.1 percent in the first quarter to 65 percent in the April-June quarter before reaching 67.1 percent in the third quarter.
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Other indicators that were mentioned include the credit risk profile of home loans. This has remained strong, with macroprudential measures that encourage prudent borrowing and improve the capital buffer.
But since household resilience is tied to employment and income, the credit risk of home loans could increase further if the economic recession persists, the central bank said.
The unsecured loan repayment rate, a leading indicator of the credit quality of home loans, has skyrocketed in the third quarter, suggesting that more households could face home payment difficulties, he added.
“It is necessary to closely monitor the housing loans of the most vulnerable households in the coming months, given the expectation that the recovery of the labor market will continue.”
As for the real estate market, the report noted how private home rentals have moderated along with rising vacancies.
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Availability rates for private residential properties increased from 5.4 percent in the second quarter to 6.2 percent in the third quarter. Rents fell for the second consecutive quarter during the July-September period, as the rental price index for private residential properties fell 0.5 percent.
Weakness in rents was observed for both properties with and without land.
“If the demand for rental properties continues to decline, borrowers who depend on rental income to meet their mortgage payments on investment properties could face difficulties in repayment,” said MAS.
Consequently, prospective buyers should consider the possibility of further weakness in rental income when committing to the purchase of investment property. “
In the 112-page report, the central bank also urged local businesses and banks to remain vigilant and cautious as an uneven economic recovery “will hurt jobs and corporate profits.”
“The risk of financial stress persists during this long recovery period. Therefore, continued vigilance and prudence remain necessary, ”he wrote.
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