Living on the credit line

Singaporeans are borrowing more now and many may be in deep trouble, even if they don't immediately realise this.

Plus, with many committed on real estate, if mortgage rates go up by 3 percentage points - which experts predict will happen - 1 in 10 borrowers here could find themselves struggling indeed, Mr Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), warned at a press briefing last month.

It is enough of a worry that Nominated MP Laurence Lien and Non-Constituency MP Yee Jenn Jong have tabled their questions on the debt level in Singapore for tomorrow's Parliament sitting.

The debt picture in Singapore is not rosy.

According to a Credit Bureau Singapore (CBS) report, the average amount of debt per borrower is up 27 per cent, from five years ago.

As of May this year, the average principal sum that consumers owe for property, motor vehicle and personal loans is $156,980.

CIMB economist Song Seng Wun explains the consequences of higher debt. He tells The New Paper on Sunday that the rock-bottom interest rates and easy money available over the last five years have contributed to the situation.

"The rising cost of big ticket items like homes and cars have pushed people to borrow more. The problem is these people expect cost of borrowing to remain low, which is not going to be the case."

A likely segment to be stretched? CBS says there are 48,782 borrowers who have at least two mortgages in addition to other types of loans now. This is up 78 per cent from 27,343 borrowers in 2008.

MAS says that 5 to 10 per cent of borrowers here have probably overstretched themselves on their property purchases.

That is, their total debt servicing payments, including those for their home, car and other loans, amount to more than 60 per cent of their income.

Mr Song also cautions that borrowers should be more prudent when it comes to property purchases here or overseas.

"Borrowers think it's cheap money and expect good returns, but this is not guaranteed. When cost of borrowing does eventually go up and they will find themselves severely stretched."

And in the worst case scenario, the debts can mean bankruptcies. And there has already been an increase.

From January to June this year, 1,061 bankruptcy orders have been made while only 862 were made in the same period last year. In 2012, there were a total of 1,758 bankruptcy orders made.

Data from CBS also shows that consumers now have higher unsecured loans and higher credit card balances as compared with 2008.

The average principal sum they owe has gone up from $8,887 in May 2008 to $12,678 as of May this year, which is a rise of 43 per cent. Unsecured loans include credit cards, education and renovation loans.

The monthly credit card balance has also risen, from $4,591 in 2008 to $5,488 today - a 19 per cent increase.

Mr Song says that there has been a greater dependence on credit because of preferences to lead a certain kind of lifestyle.

But he adds that it the increase in credit card balances is not an issue, as long as the consumers have the means.

"While, the growth of the economy here is not as much as expected, there are still sufficient job opportunities and this inspires confidence in consumers, who then spend," he says.

But banks should be more prudent, for example, by not giving out new credit cards until the consumer has paid his debt.

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