SINGAPORE – Households fended off pressures from rising living costs and high interest to stay financially healthy in the first half of 2023 but dangers lie ahead, say experts.

They note that inflation and interest rate challenges remain, while recession fears continue to cloud the horizon.

Household net worth – the difference between the value of assets and liabilities – came in at around $2.7 trillion in the second quarter, up 8.9 per cent from the same period in 2022.

This followed growth of 8.2 per cent in the first three months of 2023, an improvement from the 6.7 per cent year-on-year increase recorded in the fourth quarter of 2022, noted the Department of Statistics last week.

The second-quarter numbers showed that year-on-year growth in the dollar value of financial assets – anything from shares to life insurance, currency and bank deposits – accelerated by 6.6 per cent, while expansion in non-financial assets such as residential property slowed to 9.1 per cent.

Households put more money into shares and securities in the three months to June 30.

Shares and securities include Treasury bills and other shares listed and/or traded on the Singapore Exchange, unlisted stocks, unit trusts and investment funds.

OCBC Bank wealth advisory head Aaron Chwee suggested putting “at least 20 per cent of income every month” into investments for goals like retirement and children’s education.

Ms Lee Meng, executive financial services consultant at Gen Financial Advisory, said clients may want to think twice before investing in risk assets such as shares. “No one really knows where the market is going to turn next. It could be heading for a strong recovery, or the real crash may happen,” she added.

She recommends people allocate cash into Treasury bills to benefit from prevailing high interest rates.

Households also beefed up their insurance coverage in the second quarter, with life cover expanding 5.4 per cent from a year earlier to snap four quarters of negative growth.

Mr Chwee said many Singaporeans still see insurance as a cost, unlike investing, which can deliver returns.

He added that there should be sufficient insurance coverage in the event of hospitalisation, death, critical illness and disability to ensure that unforeseen circumstances do not dent household finances.

While financial assets registered stronger growth in the second quarter, non-financial ones grew at a slower pace.

Professor Qian Wenlan, a professor of finance and real estate and Ng Teng Fong chair professor in real estate at the National University of Singapore Business School, said policy interventions have played an important role in cooling the property market.

There have been three rounds of cooling measures since December 2021.

The latest, in April 2023, further raised the additional buyer’s stamp duty (ABSD) rate for Singaporeans and permanent residents who are not first-time buyers. The ABSD was also doubled for foreigners buying residential property.

“Right now, what we observe is that after… the additional ABSD hikes, what is happening is that transaction volumes have softened, but prices still appear resilient,” Prof Qian said.

The classification of new Build-To-Order (BTO) public housing flats – as Standard, Plus or Prime – will also put more restrictions on some flats from the second half of 2024.

For instance, buyers of new Plus and Prime flats must live in their units for 10 years, up from the usual five, before they can sell them in the resale market, as well as pay back part of the subsidies they received once the flat is sold.

Flats can also be sold only to buyers who have met certain conditions, such as an income ceiling. More details will be announced soon.

Prime flats already have stricter restrictions: They can be sold only to buyers who meet all the eligibility criteria for BTO flats, such as the income ceiling cap of $14,000 for couples and $7,000 for singles.

At least one of the buyers must be a Singapore citizen.

Resale buyers of Prime flats also cannot hold or sell a private property in the past 30 months.

Prof Qian said: “That will potentially reshape people’s expectations about housing market prices in the future, and therefore they may want to shift more of their investments, relatively speaking, to non-housing assets.”

Tighter criteria on borrowing and loan limits also mean buyers can borrow less to fund property purchases.

Mortgage lending has grown at a slower pace since the second quarter of 2022.

This slowed further to 1.8 per cent in the second quarter of 2023, from 2.5 per cent in the first.

Mr Alfred Chia, chief executive of SingCapital, said this shows that home owners remain quite prudent, with no sign of excessive borrowing.

But he is concerned that high mortgage rates will begin to impact home owners, many of whom locked in mortgage packages at lower fixed rates two to three years ago.

When their lock-in period expires, they will be faced with higher rates.

Mr Chia noted: “You may be paying 1.2 per cent, 1.6 per cent interest. But after the lock-in period, you are now looking at 3 over per cent. This is a 100 per cent jump in interest costs.”

While people can use savings in their Central Provident Fund account to fund the higher repayments, Mr Chia said this will reduce their retirement funds.

Credit card debt could turn out to be another red flag in household balance sheets.

It shot up 15.4 per cent year on year in the second quarter of 2022, the first time since the first quarter of 2014 that credit card debt saw double-digit growth.

Credit card debt has increased every quarter since, until a dip in the first three months of 2023. It further weakened in the second quarter, to 14.5 per cent, but remains one of the biggest liabilities of the average Singaporean household.

OCBC’s Financial Wellness Index 2022 noted that 34 per cent of Singaporeans paid only the minimum on their credits cards in 2022, compared with 27 per cent in 2021.

Credit card debt carries high interest rates of between 26 per cent and 28 per cent, so consumers should aim to pay off any debt as fast as possible, said Mr Chwee.

He also noted that with inflation remaining high, some people will find it harder to make ends meet and turn to their credit cards.

“This is indeed a cause for concern, but not for alarm yet. We expect inflation to begin abating by mid-2024, which should ease the situation for lower-income households.”

OCBC is also concerned about middle-income customers who may have gone overboard in “revenge spending” on their cards.

“Everyone should spend within their means, the occasional treat notwithstanding, but it is not healthy to one’s financial health over the long term to be carrying too much credit card debt,” Mr Chwee said.

For now, household balance sheets remain healthy, but Ms Lee said it is important to keep an eye on the numbers over the next one to two years, especially with the risk of a recession looming on the horizon. “In the event of a recession, job security becomes a significant concern,” she added.

Mr Chwee has this advice for readers to withstand any financial calamity: “Save diligently, invest prudently, and have adequate insurance.”