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Cyprus

Wealth inequality on the rise in euro zone, net wealth drops almost 40 per cent in Cyprus

The concentration of wealth among the euro zone’s richest has increased since the bloc’s debt crisis began, with poor families suffering the biggest drop in asset values – Cyprus showing the largest drop – a survey released by the European Central Bank showed on Friday.

The euro zone’s top 5 percent of households owned 37.8 percent of net wealth in 2014, up from 37.2 percent in 2010 while the bottom 5 percent owned only debt, the ECB said, based on a survey of 84,000 households.

Cyprus participated in the survey with 1,289 households among whom the value of net wealth decreased by around 40 per cent in 2014, recording the largest decrease in the median value of wealth throughout Europe,

Suffering from waves of recession, the bloc’s protracted debt problem has worsened inequalities as states on the periphery like Cyprus, Italy, Spain, Portugal and Greece struggled, while those in the core, like Germany, were quicker to recover.

The median wealth of a euro zone household dropped around 10 per cent to €104,100 euros in the four years to 2014, mostly as property prices fell, especially for the poorest fifth of the population, the ECB said.

“The shift was particularly substantial in Greece and Cyprus, where the median fell by roughly 40 percent… but it is also large in Italy, Portugal, and Spain, where it declined by more than 15 per cent,” the ECB said,” the ECB said.

The huge fall in net wealth in Cyprus was mainly driven by a reduction in the value of real estate and the impairment of deposits in 2013, the central bank said.
Cypriot households, with €22,700 median incomes ranked considerably lower than the EU-wide median value of  €29,200, while other countries with low incomes were Greece, Portugal, Slovenia, Slovakia, Estonia and Latvia.

In particular, according to the survey, between 2010 and 2014, the median value of total real assets in Cyprus dropped by 34.9 per cent, the second largest in Europe after Greece 35.9 per cent, due to the significant drop in real estate prices. The survey results show that the median value of other real estate decreased by 32.7 per cent and the median value of primary residence decreased by 22.1 per cent.
In 2014 there was a decrease in Cypriot households that had any financial assets by 5.2 percentage points -m again the biggest drop among the countries surveyed.

Particularly there was a decrease by 5 percentage points in households that had deposits and an even greater reduction of 26.1 points in households that had voluntary pension/life insurance plans. Cypriot households rank third from the bottom in terms of having financial assets.
But while there was a significant reduction in the value of total financial assets, deposits increased significantly, almost doubled. This is explained partly by the huge decrease of 42.2 per cent in the median value of voluntary pension/life insurance plans, which Cypriot households most likely chose to sell and to keep as deposits.

Credit liabilities of Cypriot households, dropped by 6.3 points, largely due to the consolidation of as well as the lack of new loans in market.
A significant downturn of 10.9 per cent was recorded in the possession of non-mortgage loans, as consumption loans, suggesting that households are more cautious in borrowing for occasional purchases.

Despite the decline of households with debt, the median value of total household liabilities shows an increase of 17,7 per cent, which probably indicates the repayment of low and medium-value loans, as well as the high lending rate as a result in delayed debt repayment.

Bucking the trend, median wealth in German, the bloc’s economic powerhouse, increased by 10 per cent over the same period. It also edged up in Austria, Finland and Luxembourg.

To reach the top 10 percent, households needed to hold net wealth of €496,000 or more, while the lowest 10 per cent had €1,000 or less.

“The fall in net wealth was mainly driven by a reduction in the value of assets, in particular real estate,” the ECB said. “The decline in net wealth was higher for leveraged households, especially homeowners with a mortgage, compared with outright homeowners and renters.”

The property price fall, a consequence of the bloc’s economic crunch, hurt the poorest the most – real estate wealth was down by a fifth for the poorest 40 per cent, twice the rate of the drop affecting the richest 20 per cent, the ECB said.

Families in Luxembourg, where the financial sector dominates the economy, were the richest, with a median net wealth of €437,500. In the formerly Soviet, Baltic state of Latvia, it was just €14,200.

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