Debt levels will rise further as more homes become available.
This chart from Maybank Kim Eng shows the brisk pace of mortgage debt growth in Singapore, which has fuelled a steep increase in household leverage in the city-state.
Maybank Kim Eng noted that household liabilities have been on an uptrend since 2009. The ratio of mortgage debt to residential property assets was 26.9% as of September 2015, still elevated but well below its all-time high of 31.8% in June 2005.
"Given the deluge of new homes due for completion over the next few years, we expect debt levels to rise further," the report noted.
As most debt are backed by housing assets, Maybank Kim Eng believes that the government will not allow property prices to drop below 15% from their recent peak.
"A sharp plunge in home prices could bump leverage up to undesirable levels and hurt other parts of the economy. We estimate that a 15% decline in property values will jack up [the mortgage debt to property assets] ratio to 31.7%, close to its 2005 historical high. We believe such leverage is undesirable, potentially testing the limit of the government’s tolerance,” the report noted.
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