A Good Piece of Financial Advice Courtesy of MAS

January 25, 2022

Have you ever wondered why is the Monetary Authority of Singapore (MAS) so concerned about household debt levels? Well! If you have been reading the latest financial happenings out of China on Evergrande, you would have gotten some key takeaways regarding the consequences of overleveraging, overconcentration of household wealth in the red hot real estate bubble, and failure to exercise financial prudence among all the market players, whether is the individual, the company itself, or just lack of tight supervisions among all market participants.

Now, how does it relates to the Singapore experience?

Have anyone of you got a chance to take a look at the latest Financial Stability Review (FSR) 2021? The 2021 FSR report contains 126 pages, and you can easily bet that it will put you to sleep immediately! But wait! Please do not think that this 2021 FSR report is just any other government policy containing jargons. If you are conscientious enough, flip to Section 3 of the report where it discusses the state of the Singapore Household Sector

Why is MAS so concerned about household debt?

The Singapore government has always been looking out of the citizens’ interests, be it welfare, or financial, and household debt is something policy makers often monitor to ensure that Singaporean households are exercise financial prudence and properties being one of the largest illiquid, and is perhaps one of the lifetime assets that one has ever spent his/her income on.

In fact, MoneySense, a national financial education programme since 2003 has been reminding households to only choose a home based on what you can afford in terms of upfront and outgoing payments.

Likewise, in the latest 2021 FSR report, MAS noted that while the overall credit quality of housing loans has improved over the past year (2020) and have stayed healthy against the backdrop of a robust property market, it pointed out that if in the event of a shock to the property market could impact domestic demand, given that residential properties and loans accounted for the bulk of the household balance sheet (40 per cent assets and 75 per cent of liabilities), the consequent rise in non-performing loans (NPLs) would pose risks to Singapore’s financial system as household exposures form the major bulk in the overall of housing loans applied at during the peak of bull market runs prior to Covid-19.

 Why are we far off what’s happening to China’s property market?

After 10 rounds of property cooling measures since 2010 till the last measure in 2018, which focus on tightening up the overall lending limits, Singaporean households, in general, are able to stay financially discipline and exercise prudence especially when the report noted that the average loan-to-value (LTV) ratio of outstanding housing loans has eased further to a low of 45.7 per cent in Q3 2021 (as shown in the following chart below).

Source: MAS 2021 Financial Stability Review

Property Prices have generally enjoyed gains across all regions (as per diagram shown below):

Source: MAS 2021 Financial Stability Review

Household debt has declined, albeit a tick higher than pre-Covid

Source: MAS 2021 Financial Stability Review

Household Net Worth has been improving overtime

Source: Singstat

So, are we financially prudent after all

All the government data shown here and the report (if you haven’t read it) suggests that we could be financially strong after all, but it is also important that one should not be too carried away as the following charts from the MAS 2021 FSR report suggests that household mortgage loans could be rising due to the present upsurge in property loans.

Source: MAS 2021 Financial Stability Review

However, there is a saying that nothing is forever, and what goes up will one day collapse, and it could leave is penniless if we are reckless in our finances. Although the government is doing all it can to prevent a collapse in housing prices which could sap away all the market confidence that it had built over many years, individuals like us can start planning ahead and start stepping back to think whether are we buying properties just to keep up with the Joneses, or are we being too obsessed by the notion that property is the one and only asset that can rocket our retirements to the moon.

So, the next time you meet with a real estate salesperson or your financial adviser, ask yourself, do you really to invest in properties now, or you can perhaps wait a bit longer until you have the sufficient monies set aside to finance this huge investment of your life. Over obsession in property is not going to be healthy in the long run.

What should homeowners do

For prudent buyers seeking for just a roof over their heads, do evaluate your home buying options closely. There are several motivating factors for households wanting to seek for a home, be it the impending interest rate hikes, uncertain economic environment, the seemingly never-ending rise in home prices and the subsequent pent-up demand driven by the widespread “fear of missing out” (FOMO) syndrome among a certain group of households.

However, if one were to take moment and evaluate the motivating factors, there could be some that are important like proximity to schools, and is not necessarily just about being close to good schools. As parents, you will naturally want to have your kid/kids in a nearby neighbourhood school, be it good or ordinary school. This is especially true if your children are just starting out their formative years of primary school where some amount of hand holding might be needed to guide them through their primary school journeys. Therefore, if you are looking for convenience, and if average transaction prices of the nearby homes work out well for your existing financial circumstances, it might perhaps be good to find a home that is near a neighbouring school and to maximise your kids’ sleep time as well.

A second prudent approach you might want to consider when choosing the most economical home might be to consider executive condominiums or ECs. ECs are a form a special group of public/private housing options made available to the so-called “sandwich” class whose monthly household income does not exceed more than S$16,000, and at least one applicant must be a Singapore citizen or Singapore Permanent Resident (SPR). Moreover, one must not own any other local or foreign properties, or have not disposed any properties within the last 30 months. There are other criteria including not having bought a new HDB/DBSS flat or EC, or have received by CPF housing grant before, among others.

Should you be looking for the EC option, according to an August 3 2021 article published on Yahoo! News website, a typical 3-bedder EC can cost from S$800,000 plus to S$1.2 million and the article quoted a recently launched EC located at Parc Central Residences at Tampines Avenue 10, the 3-bedroom units were quoted at around S$956,000 to S$1.07 million.

So, if you are looking for homes that have condominium facilities, would like to stay at the same place for a minimum occupation period (MOP) of 5 years and yet conveniently accessible to nearby amenities, ECs might perhaps be seen as a natural choice for many.

However, in all, if you have busy work schedules, and wanting to seek for professional advice, it would be good to first seek out for reputable, honest, and trusted real estate salesperson (RES). It is the trust that you built up with your RES that could determine whether you are getting the right property buying/selling advice. A RES with full integrity, trustworthy, and is willing to go all out to serve the clients’ interests could naturally be the person that will act professionally to your interests. This is highly important as a trustworthy and dependable RES could make or break your dream home purchase. Therefore, do consider if your RES is looking out for your interests, and be wary of unethical RES seeking solely to earn a sizeable chunk full out of your pockets.

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