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Household wealth takes knock as HDB values fall

SingStat data suggests value of holdings could be reaching inflexion point

[SINGAPORE] Several rounds of cooling measures and a major ramp-up of housing supply are making their impact felt on household balance sheets - with the value of HDB flats held by households falling 0.7 per cent to $412.8 billion last year - the first year-on-year decline since 2005.

The data, compiled from the Department of Statistics' website, suggests that the value of households' holdings of HDB flats could be reaching an inflexion point, after rising 6.8 per cent in 2012, 11.5 per cent in in 2011 and 14.5 per cent in 2010.

The dip in the value of households' housing assets should not worry the majority of households that have paid off their mortgages, say market watchers.

Housing assets make up close to half of households' assets and 58 per cent of their total net wealth here, unlike in the United States and Japan where financial assets account for about 60 per cent of households' portfolio. For the majority of households, HDB flat values have the biggest potential impact, with 82 per cent of Singapore residents living in HDB flats.

The fall in the value of households' holdings of HDB flats came despite the continued increase in HDB dwellings last year by 2.4 per cent to 961,800 units, and a slight increase in ownership of HDB homes to 91.8 per cent from 91.7 per cent, with the remaining proportion renting.

On the whole, Singapore's household holdings of residential assets grew the slowest in eight years with a 1.8 per cent rise in 2013, compared with a 7 per cent growth in 2012 and 10 per cent increase in 2011. This came as the property market continued softening. Resale HDB prices have begun to soften even in mature estates such as Bishan and Queenstown. Both private homes and resale HDB flats have seen weakening prices respectively, in the past two and three quarters.

The household balance sheets data from the Department of Statistics looks at all household units including Singaporeans, permanent residents (PRs), foreigners and unincorporated enterprises while its data on housing dwellings factors in only residing Singaporeans and PRs.

SLP International executive director Nicholas Mak noted that the growth in overall household assets in 2013 was slower than even during the property market trough of 2009 amid the global financial crisis.

HDB values have "reached an inflexion point", engineered by a large supply of build-to-order (BTO) flats, stricter mortgage rules and a three-year waiting period for newly minted PRs to buy resale flats, he said.

But Mr Mak noted that most HDB flat owners hold their units for the long term, so short-term fluctuations in HDB prices may not trouble them. "Only those who want to sell their HDB flats now will be concerned," he said.

It should also not be worrying to a majority of households that have paid off their mortgages. In fact, many HDB dwellers are still sitting on paper gains from the uptrend since 2006, market watchers say.

Resale HDB prices have surged some 95 per cent between 2006 and 2013 while households' holdings of public housing assets grew a compounded annual rate of 9.5 per cent over the past eight years.

R'ST Research director Ong Kah Seng pointed out that despite the recent decline in resale HDB prices, prices are still at near-record highs.

However, property experts are expecting a further softening of resale HDB prices amid new flats being released under HDB's BTO and Sale of Balance Flats schemes. Buyers of newly completed private housing may also decide to let go of their HDB units. This could have further implications on household balance sheets.

"Our projection is for resale HDB prices to soften by 5-8 per cent over the whole of 2014," said ERA Realty key executive officer Eugene Lim. "Lower resale prices will lead to lower valuation prices."

While the risk of households falling into negative equity is now remote, further declines in asset prices could hurt those who have pledged their assets for loans - an area where there is no clear picture as no data is available.

Citi economist Kit Wei Zheng is questioning if older individuals have pledged their private property assets to obtain more leverage, since data from MAS and the Credit Bureau showed rising debt burdens among those in their 30s to 50s.

"We suspect that the surge in debt levels with age may provide circumstantial evidence of increasing prevalence of asset-based (as opposed to income-based) borrowing amongst older borrowers," he said in a recent report.

"Given the earlier entry point of this age group into the property market at lower price levels (and greater proportion of mortgages repaid), it is also likely that this group has a larger share of overall housing equity in the economy, which it has likely tapped to obtain more personal loans," he added.

Mr Kit noted that such practices, if prevalent, "could exacerbate the feedback loop between falling asset prices, falling net worth, forced deleveraging, and further declines or volatility in asset prices".

DBS Group economist Irvin Seah reckons that those who have over-extended themselves in mortgage loans are still the minority.

The total debt servicing ratio (TDSR), which caps the total debt obligations of borrowers at 60 per cent of gross monthly income, has significantly reduced risk of households over-stretching themselves in mortgage loans and prevented borrowers from pledging their assets for loans, he said.

BT understands that banks have been undertaking stress tests on their exposure to the property market as required by MAS.

The burden of deleveraging will likely cause households to cut down on discretionary spending, Mr Kit said.

"With over 70 per cent of mortgages for owner-occupation and average loan-to-value ratios of 47.5 per cent, the risk of a substantial rise in NPLs (non-performing loans) is probably limited in our baseline scenario of a fairly tight labour market, even if house prices fall 10-15 per cent."