MAS Urging Households to Exercise Prudence When Buying Big-Ticket Items Due to Economic Uncertainties

By
Andrea Tan
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The headline seems too chim?

Basically, income streams remain dampened, higher unemployment rates persist and recovery will take time, so don’t be stupid with your money.

You can now cancel your car loan. And now, for the expanded and boring version of this article:

Uncertain Economic Outlook

In its annual financial stability review, the Monetary Authority of Singapore (MAS) warn the public that the economic uncertainties will persist.

Most households in the country are said to be holding up quite well financially. However, those that are struggling in worse hit sectors may be able to benefit from the relief measures released earlier this year, which assists businesses, households and individuals with their loans (think mortgages, property loans and student loans).

The central bank (MAS) proceeds to remind Singaporeans to remain prudent with their spending, saying “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.

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

In other words, you might have a monthly income today, but you might not have one tomorrow, so be prepared.

Asset Values Holding Up

Singapore’s household balance sheets are said to be “relatively healthy” due to the build up for financial buffers prior (i.e. got savings lah).

Singapore’s household net wealth increased to 4.4 times our gross domestic product (GDP) compared to 3.8 last year.

“While the increase is partly due to the fall in GDP, asset values continued to hold up despite the economic slowdown,” MAS explains. “Further, liquid assets such as cash and deposits continued to exceed total liabilities, providing households a financial buffer against income shocks.”

Leverage Risks

Though aggregate household debt dropped (a good thing), nominal GDP dropped by a larger margin (a bad thing). Consequentially, the household debt as a percentage of GDP rose from 63.1 per cent to 67.1 per cent from the first quarter to the third quarter.

The credit risk profile of housing loans, while stable at the moment, may also suffer, given how is affected by employment and income.

“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,” MAS wrote in their report.

Basically, people can still pay housing loans now but soon, that might be a problem.

Declining Property Rentals

The rental rates for both landed and non-landed properties suffer, while the vacancy rate for private residential properties increased from 5.4 per cent to 6.2 per cent from the second quarter to the third quarter.

This is noteworthy for people who have or will be renting out their property, or people looking to invest in property.

As the central bank says, “Should demand for rental properties continue to fall, borrowers relying on rental income to meet their mortgage instalments on investment properties could face difficulties in repayment.

“Prospective buyers should accordingly factor in the possibility of further weakness in rental income when committing to purchases of investment properties.”

In other words, if you’re a landlord…GGWP because things aren’t looking goody.

Featured Image: joyfull / Shutterstock.com

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Andrea Tan
Email: [email protected]