The Weakest Link In Real Estate Markets

This is too interesting not to share with folks so I will try my best.

Had a long lunch with my old insurance friend who runs a pretty big portfolio and he had some fascinating insights for me which I had not really thought too hard about.

You see, sometimes when you are fed on headlines, you do not think about certain consequences and the risks.

His take is that the emphasis on over leveraged households in Singapore is a true threat to the entire market because if this group caves in, market prices will be dragged down forcing the mark to market prices of everyone else in the leveraged category, endangering them too.

You see, for although Singapore’s household assets comprise about 50% property and property loans account for 74% of household liabilities.

The household debt-to-income ratio has risen, from a low of 1.9 times in 2008 during the Lehman crisis to 2.1 times in 2012. In addition, household debt has grown more quickly than household assets since Q2 2011.
MAS estimates that about 5-10% of borrowers have monthly debt-servicing burden greater than 60%. That works out to be about 50,000 households, according to Citibank, which is quite a mean sum if we think about it. If 10% of them find themselves out of work or such, that would be 5,000 units out on the streets.
This does not bode too well especially when we have about 200,000 units of housing to hit the street in the next 3 years till 2016 – HDB 107,000 unites, Private 84,000 and Exec condos 13,000
The population is growing at an estimated 0.5% a year, which would mean about 200-250 thousand people. Assume 4 to a family, that would be 50,000 new families each year or more. It is a fine line but luckily for us, the unemployment rate is at its lowest ever which also begets the risk of higher unemployment if the economy slows down in the future.
Some food for thought.