Rising household debt a concern across Asia

By
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Tan Chee Yuen
/ The Edge Property
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March 4, 2017 8:00 AM SGT
Government officials, policymakers, economists, bankers and experts gathered here for the Second Annual Asean Consumer and Household Debt Conference on Feb 22 and 23. The two-day event aimed to provide insight into the implications of household debt and the challenges faced by the policymakers.
“Over the years, household financial liabilities as a share of personal disposable income has gone up in Asia,” said Akrur Barua, an economist at Deloitte Services LP, setting the tone for the conference.
According to Barua, a number of factors have led to the rise in household debt in Asia. Rising incomes in Asia have resulted in higher consumer demand for products and services. Along with income growth, there is an increase in access to credit across Asian economies. Post- 2008, policymakers also offered fiscal and monetary incentives to entice consumers to spend more. In addition, rising demand and a flow of liquidity led to a surge in asset prices, especially in the housing sector. With demand for housing remaining strong and house prices rising, the result has been a rapid increase in the value of housing loans or mortgages.
“Cyclical credit outpaced cyclical growth from 2011 to 2015 in many Southeast Asian countries”, noted Vincent Conti, Asia-Pacific economist at Standard & Poor’s Ratings Services Singapore.
According to Barua, the household debt burden in many Asian economies is now even higher than the US figure prior to 2009, before the global financial crisis (see Chart 1). In fact, Thailand, Malaysia, South Korea and Taiwan have crossed the 80% mark in household debt-to-GDP ratio.
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Malaysia has a household debt to GDP of 88.7%. Total household debt stood at RM1.1 trillion ($348 billion) as at September 2016, according to Dr Nirwan Noh, head, monetary and prices section fiscal and economics division, Ministry of Finance, Malaysia.
Barua warned of the risks of rising household debt with the housing cycle on the upswing. Across Asia, house prices have been escalating as demand for housing rises amid strong income growth. Real estate makes up about 86% of household wealth in India and Indonesia, and 50% in China, compared with...