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According to Mark Cunningham, Managing Director, Bank of Ireland Private Banking: “A key defining characteristic of our wealth is that it is first generational by nature, with the vast bulk of our wealth having been created in the past ten years. The report highlights that much of this wealth has been created through gains in property investment and through a willingness to borrow to invest further. It has been entrepreneurial and more risk orientated than many other developed countries where inheritance features more prominently. The current allocation of Irish wealth to equities and cash, by contrast, is less than any of the other countries in the report. “However, we predict that this will change as property price increases move back to more realistic levels and an ageing population may act as catalysts to create growing interest in diversification into other assets, primarily investment and pension funds. As wealth grows and matures, the benefits of diversification become compelling and an increasing amount of this wealth will be allocated to other assets. This is a natural evolution as Ireland’s wealth matures and individuals seek to protect their gains and transfer wealth to the next generation,” added Mark Cunningham. The Report states that while property will continue to be dominant, it will no longer be the pre-eminent asset of choice – other assets, more particularly equity markets, bonds and cash will come to the fore. In 2005, Irish asset allocation stood at cash 10%, bonds 3%, equities 16% and property at 71%. By 2015, Bank of Ireland predicts that asset allocation will change to cash 12%, bonds 5%, equities at 22% and property at 61%. Commenting at the launch of the report, the first of its kind in the Irish market, Pat O’Sullivan, Senior Economist and author of the report said: “The growth in wealth in the Irish economy has been astounding, with net wealth growing by 350% in 10 years. This is after taking into account the level of household debt in the economy and this highlights the rude health of Irish household’s finances. We expect that net assets will grow to over €1.2 trillion by 2015, an increase of 80% in the coming decade.” The report outlines that personal disposal income in Ireland has doubled over the past ten years, and it is forecast to double again over the next ten years.
The annual level of personal savings stood at €10 billion at the end of 2005 and this is forecast to increase to €13.5 billion by 2010 and to €24 billion by 2015. The latter figure equates to 14% of disposable income, which contrasts sharply with the recent averages of 1% in the US and 5% in the UK. We have to look to Germany to find a similar attitude to savings, where it approaches 10%. “Much has been made of the level of indebtedness in the Irish economy, with the pace of growth in debt much higher than in many other countries. However, liabilities as a percentage of total assets have only now reached international averages. While debt as a % of disposable income has increased from 89% to 140% in the last five years, the level of wealth provides an enormous cushion to borrowers. Neither the absolute level of borrowing nor the level of borrowing relative to overall wealth are ahead of international norms – indeed, we have come from significantly behind other developed countries. What is really interesting is that Irish investors have used much of this borrowing to leverage their positions in property, which, in turn, has been the engine for growth.”, added Pat O’Sullivan. The report estimates that the number of millionaires in Ireland is somewhere in the region of 30,000. Bank of Ireland Private Banking’s definition of how millionaire is defined is total assets excluding principal private residence. Of those, it estimates that there are over 300 individuals with a net worth in excess of €30 million, a further 2,700 with a net worth of between €5 million and €30 million, with the remaining having a net worth of between €1 million -€5 million. Interestingly, if the definition included principal private residence, the number of millionaires in the Irish economy could be as high as 100,000.
Highlights
Table 1: Forecast Assets €billion (low growth scenario)
Table 2: Forecast asset allocation
Table 3: Irish household assets and net worth 2005-2015
Table 4: International wealth table
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