Singapore’s builders punished by massive debt buildup

The economy needs to deleverage.

Singapore’s steep levels of household and corporate debt have taken a toll on the city-state’s construction sector and property market, according to a report by Morgan Stanley.
Morgan Stanley noted that the nation’s builders and developers will bear the collateral impact as the economy scrambles to reduce its debt overhang.

Household debt has decreased somewhat to 75.0% of GDP in 2015 from 75.9% in 2014 following the slew of macroprudential measures rolled out by MAS, but corporate debt– as represented by non-personal resident lending (ACU and DBU) – continued to edge up to 86.7% of GDP in 2015 from 85.2% in 2014.

“The unwinding of the leverage cycle has already led to collateral impact in the construction sector and property market. On the former, the sharp decline in the value of construction contracts awarded indicates that construction momentum is likely to slow down significantly in the quarters ahead,” the report said. 

Apart from this, the weak residential property market looks set to soften further as the huge pipeline supply of housing units get completed progressively and as developers come under greater pressure to offload units in view of looming Qualifying Certificate (QC) and Additional Buyer’s Stamp Duty (ABSD) deadlines.

“To be sure, we don’t think the leverage excesses would lead to a cathartic boom-bust cycle given the absence of a big external shock and/or a hard landing in the property market. However, we do expect an elongated process of leverage digestion for the economy and slower credit growth for longer. Policymakers would need to work to contain the leverage build-up from trumping GDP growth,” Morgan Stanley noted.