Total debt-to-GDP ratios across the Asia-Pacific (APAC) region have remained well above pre-pandemic levels, although some countries such as Singapore, Malaysia and Indonesia did record lower debt ratios in 2021 compared with 2020. This was due partly to the success of containing domestic Covid-19 cases while keeping production lines open. On the other hand, Thailand, Vietnam and the Philippines had trouble containing total debt in 2021 due to tightened Covid-19-related restrictions through much of the year.

Government fiscal policies across Southeast Asia have offered support to stabilise household debt in 2021. However, the household debt-to-gross domestic product (GDP) ratios in Malaysia and Thailand remain among the highest in Southeast Asia and are at risk of non-performance as interest rates normalise. Elevated household debt remains a major problem despite a recent slowdown in the pace of household debt growth. Many Southeast Asian countries are also facing skyrocketing housing prices as hot money and speculation continue to push up prices.

Within North Asia, the greatest risk regarding household debt is in South Korea. Its household debt-to-GDP ratio is high at 106% and rose more quickly since the outbreak of the pandemic than in any other country in the IIF database, including both advanced and emerging economies. This debt is largely mortgage debt, which is fuelled by strong demand for homeownership and very high house price appreciation. Indeed, the Bank of Korea has recognised this issue, as it was one of the first central banks in the region to begin raising interest rates post-pandemic. In doing so, the bank explicitly cited the need to rein in mortgage lending and the accompanying runaway house prices.

Similarly, in China, mortgages make up a large share of household debt. And while China’s household debt ratio has risen with the property markets, it amounts to just 60% of GDP, versus South Korea’s figure above 100%. Further, the current downturn in China’s property market will likely lead to some reduction of China’s household debt ratio in coming quarters. Japan’s household debt looks much like China’s in terms of its ratio to GDP and the increase since the end of 2019. The main difference is that Japan’s household debt includes consumer debt and, thus, is less concentrated in mortgages.

Households face similar concerns in Australia and New Zealand. Property prices in Australia and New Zealand have soared over the past two decades, pushing each country’s household debt-to-GDP ratio to be among the highest in the world. Property prices have grown further through the pandemic, supported by record-low interest rates and government programmes targeting new homebuilding. As global interest rates rise, the burden of repayments on this household debt will similarly lift. Adding to that, real wages across both countries are falling in the face of rising prices. The central banks of Australia and New Zealand expect that extra savings accumulated through the pandemic will offset some of this burden. Household savings were boosted by generous government payments, while extended lockdowns prevented spending for long periods of the last two years.