With Damien Hirst recently making headlines with his £111m mould-breaking auction sale at Sotheby’s, a quote attributed to him came to mind;
“Art is about life and the art market is about money”.
As gallerist I am continuously questioned about the investment potential of art and have by now formulated a response that usually covers most of the relevant aspects:
I do not see art as a typical financial investment instrument, as it is not created to be that in the first place. Artists usually set out to capture a mood, emotion or underlying message and communicate this to the viewer using their particular approach, style and medium. Unlike financial investments art does not pay dividends, interest or rent – the ‘return on investment’ or the result of the interaction with a work of art lies in the emotional stimulation and ‘cerebral gymnastics’ experienced during this appreciation process.
In my opinion, the concept of ‘investment art’ distracts from the real purpose of art and is being emphasized to motivate non art lovers to spend more money in the ‘art industry’ – trusting that they will realise a healthy profit. This concept is largely promoted by auction houses and profit driven dealers who do not feel any responsibility towards maintaining a healthy and stable market. This approach is also not beneficial to living artists - whose livelihood depends on a stable market for their work, or the Masters market where a lot of hype around a particular collection or artist can result in unsustainable high prices. One has to realise that the objective of any auction house is only to earn the most possible commission from every lot on every sale, where they have about 60 seconds to sell that particular lot. The actual price realised is less important to them as they rarely have to accept any responsibility for the result.
Art must, however, be the cheapest pleasure available to anybody who does appreciate it. For the price of an overseas holiday or one year’s depreciation on a luxury car, you can acquire a valuable and unique work of art that will provide you with unlimited hours of pleasure for the rest of your life and that of whoever you pass it on to. The holding cost is minimal, no maintenance is required and should you ever decide to sell it, the capital gain is not taxable when privately owned in South Africa.
The real investment value of art therefore lies in the quality it adds to our lives and the very accessible pleasure it affords us without any inhibiting ownership costs.
Like any good asset acquired with the necessary care, thought and professional advice, art can also be an extraordinary investment and store of wealth in financial terms. This aspect should however not be the motivating factor to buy art, as it does not apply to every single work of art and requires a lot of research, knowledge and patience – characteristics usually found with most successful collectors.
In comparison to other asset classes like shares and property, the monetary value of art is the most stable – as illustrated in the current performance of stock markets and property prices versus the art market worldwide. The reasons for this are a combination of the following:
1. Unlike other assets, ‘the heart wills the mind’ when buying a work of art as there is a well defined passion involved – it is not just another ‘investment’ where an unemotional rational decision based purely on financial principles is concerned.
2. Art purchases are usually not financed – works are bought for cash by art lovers who can afford them. This inevitably means that it is highly unlikely that owners would come under pressure to sell, as there is no debt to service and we are dealing with people who know how to generate wealth (which enabled them to purchase it in the first instance). When art lovers do experience financial pressure, it is most likely that they will sell financed assets such as sports cars and holiday homes, but not the painting adorning their bedroom wall that they are so passionate and/or sentimental about.
3. The stability of the art market can also be attributed to the fact that it is a relatively small market with a very small percentage of the general population participating in it. At any given time a hand full of able buyers/collectors can ensure that it stays healthy and that prices are stable – in stark contrast to stock markets where panic selling can result in an investment’s value being halved (or devalued to even lower percentages as is currently the case) in a matter of weeks.
From a South African perspective, where we have exchange control regulations in place regulating and limiting overseas investments, another factor has now started to influence the SA art market – the establishment of a proven market in London, pioneered by Bonhams auctioneers over the last 3 years. The international value of top SA art works has not yet been fully digested by the market and should prove to be a very useful stimulant in these uncertain times. Not only is this aspect a comforting idea, but it is also broadening the collector base for SA artworks which could lead to some very exciting developments as important museums and collectors get involved.
In light of the above, there are a number of obvious pitfalls to watch out for when exchanging your hard earned cash for a work of art:
1. Run a mile when the ‘salesperson’ is focussing on the ‘investment’ potential of the work and not on its artistic merit and its success as a work of art by a reputable artist.
2. When starting out, with relatively little experience or knowledge, do not buy from mobile auctioneers who typically have their sales in warehouses and hotels. They are usually selling their own stock and you will be bidding against the cupboard in the corner, the driver and the auctioneer’s girlfriend in the back row until the price they are prepared to sell it at is reached. When you experience a problem with condition or authenticity afterwards, they may also prove very difficult to get hold of and the ‘fine print’ on the back of the registration card will most certainly make sure all the risk (and loss) will be for your account.
3. Do not buy paintings by the square cm – all artists have more, or less, desirable periods or subject matter and produced experimental works. Values may therefore differ dramatically for similar sized works by the same artist.
4. Rarity may often count against the value of an artist’s work as it may be an uncharacteristic style or subject matter that would generally not be sought after by buyers of that artist’s work. Unique or experimental works are usually only of interest to collectors who like to cover a broader spectrum of a particular artist’s oeuvre.
5. Do not buy to ‘just get into the market’, as you may find it difficult to re-sell a mediocre work and the transactional costs can be punishing. Be patient – there will always be an opportunity to purchase the right quality at the right price.
6. Beware of fakes. With the current values of most well known SA artists works, fakes have become a real problem. Most criminals rely on uninformed or ignorant dealers and auctioneers to sell fakes, which in many cases are old paintings bought at household sales which have simply been altered with the signature of a desirable artist. SA legislation regarding fakes is not well defined and trying to get your money back may prove to be very difficult.
1. Allow yourself enough time to educate yourself about the particular section of the art market you are interested in before you decide what you like and do not like. Nobody can judge caviar if they have only tasted hake before.
2. Frequent as many galleries, exhibitions and auctions as you can - without buying anything, until you feel comfortable about your ability to judge quality and value. This will mean that you are able to make an informed decision when considering a purchase.
3. Build up relationships with reputable galleries – professional gallerists are always willing to help educate serious art lovers and can always be approached for an opinion and advice. Be, however, aware that every gallery has a particular focus and stable of artists that it promotes and may therefore be biased towards those artists.
4. Buy the very best work you can afford. This simple rule will mean that should you ever become a seller you won’t have any difficulty finding a buyer and will realise a better price because you own a desirable work which buyers will compete for.
5. Do not buy to speculate. In most mature markets you may be blacklisted by galleries if you merely buy work to sell for a quick profit at auction. The idea is to live with works of art that you find stimulating and enjoy and not to compete with galleries who put a lot of time, energy and money in promoting artist’s careers.
6. Educate yourself about the conservational aspects of the different art mediums and how they should be framed. Realise that moisture and the ultra violet in sunlight have the most damaging effects on any work of art. Make sure you use framers who understand and practice conservation framing – there are many horror stories of the values of wonderful works having been destroyed by ignorant framers. Inspect works on paper or any work framed behind glass out of the frame before purchasing it – staples, glue or double-sided tape may already have damaged the work and halved the value!
7. Enjoy the journey – collecting art is not a race! The fun lies in the search for that special piece that will take your breath away and make you shiver with excitement. You will encounter many interesting and some tempting works along the way, but buy with your heart and not your head.
© Johans Borman Fine Art