While global property markets remain uncertain in 2020, investment alternatives are once again gaining traction, and art remains a favourite.
WHILE Global property markets remain uncertain In 2020, Investment Alternatives ARE once AGAIN GAINING traction, AND Art remains A Favourite.
Art. One of the most bewildering and opaque of all hobbies (for some) and forms of investment (for others). What makes a piece of art “valuable” isn't necessarily what gives it value. How many of us have a young relative's first kindergarten drawing framed and displayed? It's a valuable item for sure, but it has no value on the open market—even though it's rare. That's just a hint at what makes art so complex, elitist and, ultimately in some cases, lucrative. For those looking to break into investment, here are the basics of art as an investment asset.
Study up
Admittedly the art market is difficult to break into, and a great deal of that has to do with its lack of transparency. “The art market is completely opaque and really hard to figure out,” Madelaine D'angelo, co-founder and CEO of tech start-up Arthena which helps investors enter a variety of art market funds, told CNBC in 2017. Elsewhere apps like Magnus—called “Shazam for art” by its creator, Magnus Resch—call up the price history of a gallery piece users point their phones at. However, potential buyers need to do their own research, by reading up on the artist and the work, and on contemporary art in general. In this case, knowledge really is power. Art relies on a combination of rarity, aesthetic appeal, condition, cultural impact (where existing works are concerned) and innovation, and so any two given pieces' values, even by the same artist, can vary wildly.
Like property, art comes with risk. There are fat expenses (reappraisal, insurance, storage) associated with keeping art, and as a fundamentally “trendy” asset, the next Warhol may fall by the wayside when the next Picasso emerges. Art is a long-term commitment and potential investors need to bear that in mind if returns are important. However, art dealers ideally act as the cultural equivalent of property agents. They are there to help new buyers determine what their tastes might be and help investors who know what they like in sourcing it. The second step in studying up is finding a knowledgeable dealer you feel you can trust, either by cruising around art fairs or just dropping into brokerages and talking to them.
Shop around
Art fairs are among the globe's fastest growing trade show class, and events like Art Basel (sadly cancelled in Hong Kong this year) are leading the way in bringing new buyers to the market. Art Basel research stated sales revenue from fairs has increased approximately 60% since 2010, with no signs of letting up. Art Basel has given rise to Affordable Art Fair Hong Kong and Art Central, and the galleries along Hollywood Road are now being supplemented by fringe spaces in Wong Chuk Hang and Chai Wan's old industrial blocks. There's plenty out there.
Art can also function somewhat like a commodity, such as when a single artist or movement becomes a hot property. When the buzz around a young artist hits critical mass, prices go up: there's a limited supply and a lot of demand. Good investments look beyond the trendy and into truly innovative. However, moving beyond the mainstream also opens investors up to other risk factors, like fraud, which is rampant in art. Chances of getting a genuine Renoir are extremely low, so art is often a case of buyer beware: if it seems too good to be true, it probably is. Additionally, while provenance is vital, too much provenance is suspicious.
Set limits
Back in 1984, emerging New York street artist and neo-expressionist Jean-michel Basquiat sold a painting, Untitled, at a low-key auction for US$19,000 (approximately HK$147,589). In 2017, the same painting sold at a much bigger auction—sotheby's—forarecordus$110million (approximately HK$ 854million). Basquiat's untimely death in 1988 didn't hurt, but it underscored art's most powerful selling point: rarity. There will be no more Basquiat paintings.
For most beginners, HK$150,000 is a steep entry point (though much lower than the cash demanded by real estate), however art has one of the broadest ranges of entry point among all investments. The success of the Affordable Art Fair is testament to the rising interest in art, for both investment and pleasure, and with good guidance budding art aficionados can find under-the-radar galleries and struggling artists in most parts of the world. But setting limits is crucial, and as with property, potential investors need to get a firm handle on their personal budget and tolerance for risk. Leasing is a good way to get a taste of art investment before committing to an outright purchase.
Have fun
Unlike property or bonds, art as an investment is meant to be enjoyed. Sure, a holiday home is something to enjoy as well, but in most cases it's not something owners look at every day when they get up, go to work or relax in the living room. Very few self-respecting art dealers—with very, very few exceptions—will recommend buying a painting or sculpture a client doesn't genuinely love. No one wants to look at an ugly painting dominating their wall every day, no matter how much it's earning.