Unfavourable conditions in Europe drive down HNWI numbers, MDRC finds

Lack of credit financing in Europe and growing appetite for property investments has caused a drop in the total number of high net worth individuals in the European Union by 3.9% in the past two years.

According to a research brief from strategy consultant MDRC, the number of individuals with a minimum of $1m in free investable assets across the EU has dropped by 3.9% to 2,612,600 between January 2010 and January 2012.

This dynamic marks a continuation of the trend started in the wake of the financial crisis in 2008. In the two years that followed, the number of NHWIs across Europe has declined by 7.6%.

Every country in the European Union has suffered as a result of the crisis. The most notable declines were reported in Romania, which saw a 37.5% drop in its wealthy population. In Bulgaria, the number of wealthy individuals fell by 28.9%.

This downward trend has continued throughout the following two years, albeit slowing down significantly in many regions.

Unsurprisingly, the biggest decrease in the number of HNWI’s was experienced by Spain and Greece, the two countries currently most affected by the European debt crisis. In these counties the number are down 16.6% and 30.6%, respectively.

But the situation is slightly better now than directly in the aftermath of the credit crunch. Two countries have even reported an increase in the count of their wealthy populations. Austria saw the numbers grow by 3.6%, while in Estonia the number has increased by 5%.

However, over the four year period from 2008 only Slovakia and Poland saw the volume of the HNW sector increase in US dollar terms.

The research brief states the main reason for this decline is the constraint of bank finance to the small and medium enterprise sector.

“Although commercial banks may claim that finance is freely available, in practice the conditions attached are so onerous that liquidating a poorly performing investment portfolio is a much more attractive source of finance for the European entrepreneur,” the report states.

So wealthy individuals are increasingly using personal investments to re-finance business activities, which is reducing the amount of their “free investable assets” – at least $1m if the individual is to be considered HNW.

Another factor driving down the value of the free assets owned by the wealthy members of Europe’s population is the increase in real estate investments, as allocators look for safe, reliable long term investment options.

The report says that despite the volatility of the residential property sector in many countries across the EU, the investment option is still seen as a low risk one.

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