Serious Weekend Article: The truth about Leverage/Loans

“Everything Else Is Almost Irrelevant”: Era Of Cheap Money Ending
http://www.zerohedge.com/news/2017-01-05/era-cheap-money-ending-calm-storm

leverage is a dirty word

Household Debt In Singapore – Trends And Causes Analyzed http://www.valuewalk.com/2017/01/household-debt-singapore-trends-causes-analyzed

Personal loans and credit card debt, which now account for over 22% of total household liabilities in Singapore, up from 16% in 2007.



A simple reason the above growth in household debt, is the exceptionally low cost of debt.

Singaporean households are more levered than their counterparts in the US or Korea, with asset to equity ratio reaching 120% for Singaporean households compared to 80-90% for US and Korea. http://www.valuewalk.com/2017/01/household-debt-singapore-trends-causes-analyzed

Singapore: 119%
US: 89%
Korea: 83%

As debt levels rose between 2012 and 2016, household spending continually expanded. This is likely due to the fact that income growth lagged behind expenditures, thus forcing consumers to borrow to finance their purchases.

A car cost 70-100% in the past ten years.
A house cost 70-150% more in the past ten years
Income growth lagged behind expenditures.

Mortgagee sales to jump 20% as interest rates rise, analysts warn http://sbr.com.sg/residential-prope...les-jump-20-interest-rates-rise-analysts-warn

Bank loves car and home loan. There is really minimal risk for them because these are secured loans. You undertake all the risk of future rate hike by buying a car or house beyond your means and spend maybe 25-40% of your monthly repayment to banks, just for the loan interests.

When you default, they will take back the car or home. For car, they will only lend u a little above paper value (secured by LTA refund in the event the car is scrapped), the risk is small and you are still liable for the difference. For home, there is always a resale value and they will still make you liable for the difference in your loan quantum and auction-value fetched when forced sold.