What Makes Up Our Wealth?

After last month’s musings about wealth inequality in our blogpost What Does Wealth Inequality Look Like?, we were alerted by Mrs Pennies of The Family Investor that there is more to be said about wealth and inequality in Singapore in the post Is the Average Net Worth of the Singapore Household $2 million in 2024? The data from SingStats tells us that the total net worth of Singapore households was S$2.805 trillion as of December 2023. And given that there are about 1.425 million resident households in Singapore, the average net worth of the Singaporean household amounts to some S$1.968 million in December 2023!

If we take the average household being composed of 3.11 residents, this works out to be an average net worth of S$632,897 per resident. This is a tad higher than the US$397,708 (or S$536,905) wealth per resident estimated in the latest UBS (2024) Global Wealth Report 2024, but the two figures are in the same ball park. However, UBS also estimates the median wealth in Singapore to be US$104,959, or just a bit over a quarter of the average wealth. Extrapolating this difference between the median and the average, we can make the guesstimate that the median net worth per household in Singapore to be S$519,552, or about S$167,059 per person.

But what makes up this household wealth or net worth? Is it the value of the HDB flat they live in, or their CPF savings for retirement, or their own savings and investments? We take a further look at the data in the Household Sector Balance Sheet to find out!

What makes up our wealth in Singapore?

What Makes Up Our Wealth in General?

Household wealth, or net worth, in Singapore has grown by about 6.68% per year over the last 25 years. It has grown from S$464.6 billion to S$2.805 trillion at the end of 2023.

Total Household Sector Net Worth in Singapore 1998 – 2023

Source: SingStat Household Sector Balance Sheet

Of course, not all of this growth came from all households getting richer. The number of households grew at about 1.84% a year over the same period (from 989,000 in 2003 to 1,425,100 in 2023). So the increase in wealth for each household is less than 6.68% a year, at around 4.7% a year. Still, it is a good rate of increase, coming both from increase in the value of assets owned, and new assets purchased with income or wealth from elsewhere.

Household wealth or net worth in Singapore is further classified into Financial Assets and Residential Property, and Household Liabilities such as mortgage loans, HDB loans, car loans and personal loans. These Liabilities are subtracted from the Assets to obtain the final net worth figure. Under Financial Assets, there are:

• Currency and Deposits (or “Cash” for short)
• Shares and Securities, further subdivided in Listed Shares, Unlisted Shares (or “Businesses”) and Unit Trusts and Investment Funds
• Life Insurance
• CPF savings
• Pension Funds

Under Residential Property, we have:

• Public Housing
• Private Housing

We can see the composition of the net worth or wealth of Singapore households over time as follows:

The Composition of Household Wealth in Singapore 2003 – 2023

Source: SingStat Household Sector Balance Sheet

In the chart above, we adjust the value of Residential Property by subtracting the mortgages and HDB loans against them. In the same way, we adjust the value of Cash by subtracting Personal Loans against them.

Looking at the data, we see that Cash, CPF and Residential Property are the mainstays of wealth in Singapore. These account for 18%, 20% and 41% of the total net worth of households in Singapore in 2023.

What Are the Changes to Our Wealth Over Time?

The chart above shows that over the past 20 years, Singapore households have steadily increased the amount of cash they hold (which includes fixed deposits and T-bills), as well as the amount of CPF balances (net of withdrawals for housing). This has been happening even as interest rates fell to rock bottom post-2008, so it is not a recent phenomenon. This is offset by a drop in the share of Business Assets or Unlisted Shares. The proportions of other investments such as Listed Shares, Life Insurance and Unit Trusts and Investment Funds have stayed relatively constant. And these have been growing at the same rate as Total Household Net Worth over time.

The most interesting component of wealth to us, of course, is Residential Property. Overall, the share of wealth held by households in Residential Property has remained steady over the past 20 years. However, the split in value has gone in favour of Private Housing. At the same time, the value of Public Housing has slipped relative to Total Household Net Worth.

We can see this even more clearly when we look at the nominal values of Public vs Private Housing:

Growth in the Value of Residential Property 1998 – 2023 (Red – Public, Green – Private)

Source: SingStat Household Sector Balance Sheet

Even though the ratio of public to private housing in Singapore has remained fairly constant at 80% to 20% in the last 25 years, the value of Private Housing has shot up over this period, and overtaken the value of Public Housing by a significant margin. In terms of annual growth in value, Private Housing grows more than twice as fast as Public Housing! And since the largest gains in value of Private Housing has gone to landed property, more than anything, the increase in wealth inequality in Singapore over time has been driven by the gains in property wealth at the top percentiles of the wealth distribution. The lesson of the past 25 years is quite clear. To get rich in Singapore, get on the property ladder, upgrade from the ubiquitous HDB flat, and go for private property as fast as possible!

To get rich in Singapore, get on the property ladder and go for private property!

How Does This Compare with Elsewhere?

In most of the world, real estate forms the largest component of wealth. However most of this is in commercial real estate – farmland, offices, shopping malls, warehouses, factories and so on. A smaller portion of this is residential estate. Which is also why residential property does not figure highly in the composition of household wealth. An example of this is shown in this chart:

What Assets Make Up Wealth?

Source: Visual Capitalist

Compared to the generic wealth and asset allocation above, the average Singapore household looks somewhat like a person between $100,000 to $1 million in net worth. There is an unusually heavy emphasis on residential real estate. While the earlier charts show that some 41% of the Singapore household assets are in Residential Property, for the purposes of this comparison, the proportion is actually higher, at around 55%. This is because most studies of asset allocation only counts private pension assets, and not Social Security or public pensions. In a way, our CPF is like a public pension. Subtracting off the 20% share of CPF balances (which are mainly in the Special Account and Medisave Account) in the Singapore household net worth will show that we tend to hold a lot more in Residential Property.

Also, a second difference with the Singapore household balance sheet is the lack of Business Assets (which we assume is held in Unlisted Shares). Our allocation to Listed Shares, Life Insurance and Unit Trusts and Investment Funds is in line with asset allocations elsewhere, but is lacking in Business Assets. Perhaps we are not entrepreneurial enough? Over the long run, it is entrepreneurship that is usually the key to wealth. Residential Property is a less productive sort of asset in comparison, and clearly we cannot all become rentiers. Would Residential Property still continue to hold its allure in the future?

End Thoughts

The data and insights into the life and wealth of the average Singapore resident which we can glean from Singstats is quite fascinating! While many may have reacted with surprise at the findings of the UBS (2024) Global Wealth Report 2024, the data we have seen clearly tells us that there are a lot of very, very wealthy people around us! It is just that with the degree of wealth inequality in Singapore (see here), this sort of wealth is the stuff of dreams!

But apart from being able to gawk at the wealth of the rich, the Household Sector Balance Sheet tells us that the average Singapore resident is fairly conservative. with some 38% of wealth in low risk assets such as Currency and Deposits, and CPF Balances. And also a very high allocation to Residential Property, to the tune of another 41% of wealth. But with a much lower allocation to risky growth assets like Listed Shares and Investment Funds, and a still lower and shrinking allocation to high growth assets like Business Assets and Unlisted Shares. Singapore is truly not an entrepreneurial society!

Perhaps the most interesting finding is that household wealth in Singapore has been built up over the past 20 years from Private Housing. No other category of wealth has grown as rapidly as this class, with the largest gains going to the most luxurious properties, such as Good Class Bungalows. While Singaporeans are right to be proud of the public housing schemes that have put a roof over everyone’s head, they will be naive to believe that this too, can serve as a way to build wealth.

The answer, unfortunately, is quite clear. Public Housing is amongst the slowest growing of all assets which Singapore households hold their wealth in. While the news of choice HDB flats reaching new highs in prices may be bedazzling and fascinating, for the vast bulk of public housing, it only serves to tie up a lot of the residents’ wealth into a relatively low earning asset.