Disclaimer: Opinions presented below belong solely to the author.
A few months ago, I reported that Singaporean households have grown wealthier by over S$400 billion during the pandemic. This time, I’m taking a closer look at this year in particular, after the Department of Statistics released the latest figures for Q3.
Within the first nine months of 2022, the net worth of Singaporean households has increased by over S$100 billion — that is the value of all assets minus the value of all liabilities held by all Singaporean residents (citizens, PRs, foreigners and sole proprietorships to be exact).
I think too little attention is given to these numbers, though I understand that most people may not be aware of all the complexities of economics and how they impact their lives.
But I believe it’s valuable to highlight some of them to understand just how resilient the Singaporean economy — made up of millions of industrious people here on the island — is, and why.
Inflation inflates everything
The big topic of the year was, of course, galloping global inflation which in Singapore has reached 7.3 per cent in the third quarter.
Rising prices are eating into monthly budgets, reducing the value of salaries, even though wages are rising across the economy as well, but likely not fast enough for everyone. This means that at the end of the year, their value is expected to drop by about 3.5 per cent on average.
But an oft-omitted part in evaluation of the economic standing of all of the country’s inhabitants is their net worth — wealth they possess against the liabilities they have to pay off.
We tend to focus on income figures, which tend to lag a bit behind high inflation as companies are more cautious about their spending. Stable asset ownership, however, can act as a seawall protecting you from the economic tsunami, simply because they become inflated as well.
Singapore is one of few countries with very high home ownership rates, at 89 per cent of the population — chiefly thanks to cleverly-designed HDB system that covers nearly 80 per cent of all housing needs.
Much attention has been given to rising prices of accommodation in 2022, but people tend to forget it’s a two-way street — if properties are getting more expensive across the board, then your home is likely to fetch a higher price as well.
And because nearly everybody owns real estate in Singapore, they do not find themselves in a position of cash-rich savers who have just realised how much less their money is about to buy them (though there is a safety net for them as well, more on that in a minute).
According to the Department of Statistics, the value of public housing (HDB) owned by the public increased by 10 per cent in the past year, while private properties jumped by 16.6 per cent — in both cases, well above the annual inflation.
While some of these may come as a part of new stock released into the market, they still merely replaced other asset classes and contributed to overall growth in net worth of S$170 billion over Q3 of 2021, out of which S$140 billion was in real estate.
For the nine months of 2022 alone, this adds up to S$103 billion, out of which over S$96 billion was recorded in housing. As it happens, inflation is not all bad — or, at the very least, you are protected from it if you own your own home.
Needless to say, the situation would have been considerably worse if most Singaporeans rented instead of owning.
Renting yourself into poverty
Rentals have a significant share of the housing market in a number of Western or other developed countries.
While it is convenient for its own reasons, unless there are some legal safeguards in place, or mass public housing rental schemes, the free market is bound to hit tenants heavily amid rising prices — effectively compounding the devastating effects of high inflation.
When renting, you’re typically locked into a specific price for a year or two, after which landlords may easily demand much more if costs are rising across the board.
You end up either being priced out of your location into something subpar or forced to pay the premium that’s going to eat into your monthly budget for another year or two.
This, by the way, is already happening in Singapore as well, with rents going up by 70 per cent in some cases, amid housing shortage due to inflated demand from expatriates returning all at once.
Some people resort to paying deposits in advance, without even seeing the apartment:
“Everyone is just panicking … People transfer deposits without visiting the place,” added the Frenchwoman, who currently rents a one-bedroom condominium unit in Redhill with her fellow expat boyfriend for S$2,300 a month.
She said she would have opted to extend her two-year lease, which is up in January next year, if her landlord did not choose to almost double the rent to S$4,300.– ‘Overwhelmed, defeated’: Expats face up to 70% rise in housing rents as prices hit record highs, Channel News Asia, Nov. 11
Fortunately, this is restricted to a relatively minor segment of the society, while homeowners (i.e. most people) not only do not face catastrophic, overnight hikes in monthly fees but their wealth actually silently appreciates in inflationary market conditions.
And while you may not necessarily feel it in your pocket immediately, it protects the your assets into the future, before you pass them on to your children (or decide to cash out and use it any way you please).
BTO to the rescue
Even those Singaporeans who do not yet have a home, but may have saved up some money for a down payment, are protected, thanks to the nature of the BTO system.
It is designed to offer a significant discount to first time home owners versus the prices in the vicinity of the area they are buying their apartment.
Resale market prices are higher, but you pay a premium for instant availability. If you’re willing to wait a bit and qualify, you’re going to get a new home at a cut price (meaning it would quite instantly be more valuable in the real market, though you can’t just sell it the next day, as a protection against speculation).
Since the most affordable new BTO launches in less developed estates have remained about as affordable as all new HDB apartments in the past 40 years (in proportion to annual median household income levels), this first step towards owning your home remains about as easy as ever.
In the long run, it not only provides you with your own, affordable and pretty spacious home but also serves as a wealth vehicle, protecting you amid turbulent economic conditions that a small city-state dependent on global economy is constantly exposed to.
Featured image credit: tang90246/depositphotos