Industry Watch: Bulgarians' Financial Wealth up by 2% in Q3 2009

Bulgarians' personal assets grew by 2% in the third quarter of 2009 year-on-year, according to Industry Watch. Photo by BGNES

The growth of Bulgarians’ financial wealth in the third quarter of 2009 has slowed down but is still positive standing at 2% year-on-year.

This data is contained in the quarterly report of the Bulgarian consultancy Industry Watch, “Personal Assets in Bulgaria, Q4 2009“.

According to Industry Watch, the financial wealth of Bulgarians expanded by BGN 800 M in the third quarter of 2009 reaching BGN 34,3 B.

The net financial wealth, which takes into account the indebtedness of the population, is reported to have increased at 3.5% relative to a year ago, which is partly seen as a result to the slowdown of bank lending.

The Industry Watch Report on Personal Assets in Bulgaria further states:

“The growth potential of personal wealth is constrained by the stagnation on the labor market, visible through declining incomes and increasing unemployment, which will probably continue to pick up in 2010 as well. Nevertheless, there are existing factors, which stimulate the growth of wealth. In times of crisis households save, in order to face potential loss of a job or income.

Contribution to the increasing propensity to save is made also by the high yield, which depositors receive against their bank deposits. Interest rates on 1-year time deposits reached 8% annually. Prices of some consumer goods and most investment assets (housing, shares) declined substantially, which additionally motivates households to postpone purchases of durable goods in time.

Bulgarians continue to avoid high-risk investments (such as stocks and mutual fund shares) at the expense of investments in low-risk assets (such as deposits and currency), which constitute almost 90% of the financial wealth of the population.

The preservation of savings is important, because it provides a buffer against potential deepening of the crisis in the real sector in 2010, which could additionally worsen the condition of the household budgets. Relieving is the fact that household indebtedness is still almost twice lower than the level of debt in Euro area member countries.

The value of the urban housing, owned by households, decreased by BGN 6 B for a quarter, reaching BGN 105 B as of September 2009. Thus, the total household wealth (financial and housing) contracted substantially – to BGN 139 B in Q3 2009.

The rate of decline of both asking and market housing prices gradually decelerated. Varna is the city with most expensive housing, as the difference between housing prices in the seaside capital and Sofia continued to expand.

Most significant decline (of 28% annually) is reported for one-room premium apartments, which are more sensitive to changes in the business cycle. Contrary to expectations of some analysts the crisis led to contraction of the gap between prices of apartments in the high and low price segment.

Housing became more affordable to potential buyers with stable income. The purchasing power of the average wage, measured in housing floorage, increased at 55% in the last 12 months – to levels typical for 2004. Furthermore, rents declined at a slower rate compared to prices, which increased the attractiveness of the investment in housing with the aim to rent.

In case bank lending continues to decelerate at the rate of the last 3 months, and the inflow of foreign capital remains weak, we could expect that housing prices will decrease by additional 10% in the early 2010 (compared to the current levels).“

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