According to the analysis of a senior Citigroup economist, Singapore households’ net worth has slightly decreased from its peak in the past year, but is still higher as compared to that at the beginning of the decade.
One probable reason for the volume in property sales and the strong rebound of prices in the recent weeks can be the resilience in household wealth. It indicates that compared to the previous recessions, consumer spending in Singapore recovers faster.
In a report yesterday, Citigroup economist Kit Wei Zheng said, “The strength of the household balance sheet probably explains to some extent the rally in asset prices, in particular housing, and may set the stage for a swifter recovery in domestic spending”.
Mr. Kit figures that in the 2nd quarter of the year, in spite of the decline in asset prices because of the financial crisis, the Singapore households has a combined net worth of more than $900 billion, a downturn of just 5-6 percent from the 2008 peak and is 70 percent higher than in 2000.
Such net worth evaluates the value of property, shares, cash and other assets that each household owns minus the liabilities like personal loans and mortgages.
Mr. Kit’s estimates present that as household debt has increased by 30 percent from 2000 up to the 2nd quarter (Q2) of this year, the household assets’ value doubly increased, about 60 percent, within the same period.
“Even accounting for private home price declines in 2008 and the 1st quarter of this year, with HDB prices holding up and cash positions building, total household assets are up 60 per cent from 2000, and only 4.3 per cent down from the peak in Q2 2008”, Mr Kit said.
Given the continued accumulation of cash and the recent ally in equity prices, Mr. Kit figures that the entire financial assets carried by Singapore households have declined just by 3.2 percent from the peak in the 3rd quarter of 2007.
The rapid growth in assets shows that debt is currently just 16 percent to 17 percent of the total assets, as compared to the 20 percent to 21 percent in 2000 and 2001, while the dollar value of household debt has increased in recent years. Cash holdings of households alone surpass the total household liabilities, though most of that cash is probably just among the higher-income households.
According to Mr Kit, the low ratio of household liabilities compared to 2000 and 2001 “can probably be explained by wage growth – and hence, financial assets – outpacing housing price growth in nine out of the past 11 years, which has probably improved home affordability as well”.