MAS highlights resilience of Singapore households despite global uncertainties

In its annual Financial Stability Review 2024, published on 27 November, the Monetary Authority of Singapore (MAS) reaffirmed the financial resilience of Singapore households.

Despite rising global uncertainties—including geopolitical conflicts and heightened trade tensions—Singapore households are benefiting from strong financial buffers, easing mortgage rates, and stable income growth.

MAS highlighted that household debt servicing capacity has remained healthy.

A stress test conducted by the central bank simulated an immediate mortgage rate hike to 5.5% alongside a 10% income loss.

The results showed that 90% of households would still be able to meet their mortgage obligations, with only a small segment of highly leveraged borrowers at risk.

Even for this group, additional cash reserves and Central Provident Fund (CPF) savings could provide further buffers, though these were not factored into the simulation.

Easing mortgage rates, now below 3% in 2024 from a peak of 4.5% in 2022, coupled with stable wage growth, have supported household finances.

Outstanding housing loans rose by a modest 1.6% year-on-year in the third quarter, as new loans were largely offset by homeowners paying down existing mortgages.

Household debt, while increasing in absolute terms, has been outpaced by the growth of financial assets, including cash and deposits.

This has led to a stabilisation of the household debt-to-personal disposable income (PDI) ratio at 1.1, marking a consistent decline from its peak three years ago. The growth in liquid assets—up 9% year-on-year—continues to exceed the rise in liabilities, further improving liquidity positions.

MAS noted that the ratio of personal loans to PDI has continued to fall since the fourth quarter of 2021, reflecting reduced reliance on unsecured borrowing.

While personal loans increased 5.1% year-on-year in Q3 2024, this remains below the 15-year average growth rate. Credit card delinquency rates also stayed low, at less than 1%, despite rising balances driven by outbound travel and retail activity.

Stabilising housing market

The private housing market showed signs of stabilisation after a period of significant growth.

Private residential property prices declined by 0.7% quarter-on-quarter in Q3 2024, marking the first drop since Q2 2023. Aggregate price growth slowed to 1.6% for the first nine months of 2024, down from 3.9% over the same period in 2023.

Transaction volumes remained 12% below 2022 levels. New sales fell 43% in the first three quarters of 2024 compared to the same period last year, partially offset by a 22% increase in resale transactions.

Rents, which peaked in Q3 2023 after three years of steady increases, have since declined by 4%.

The rental market’s easing was attributed to a substantial increase in private housing completions, averaging 3,600 units per quarter since early 2023—50% higher than 2022 levels.

The inventory of unsold units has also been replenished, with supply now trending closer to historical averages.

Global challenges and policy vigilance

MAS noted several risks to global economic stability, including persistent trade tensions, rising protectionism, and geopolitical conflicts in the Middle East and Ukraine.

These could disrupt supply chains, create inflationary pressures, and induce a slowdown in global growth. For small, trade-dependent economies like Singapore, potential terms-of-trade shocks and prolonged high-interest rates present challenges.

In this context, MAS warned households against overleveraging, advising prudence in financial management.

The regulator underscored the role of existing macroprudential policies, which have helped temper excessive demand in the housing market and encouraged responsible borrowing.

Broader financial resilience

Singapore’s corporate and banking sectors also demonstrated resilience. Most firms maintained strong liquidity buffers and manageable debt profiles, while banks retained robust capital positions.

The 2024 Industry-wide Stress Test affirmed that the banking sector could withstand a range of severe macrofinancial shocks, though profitability might come under pressure in a deteriorating global environment.

MAS concluded that while the financial system remains robust, vigilance is essential. Both households and institutions should maintain adequate buffers to navigate the evolving economic landscape.