Art is being emerged as a new asset class for the sound-diversified portfolios. The reported returns from investing in Arts are enough to catch anyone’s eye. It is essential to understand art as an investment and how people should get returns and financial appreciation from Art, especially from Paintings and Sculptures, and yes sometimes from abolished heritage Crafts, Handicrafts.
Art as an Investment
There are few ways to look into Art as an investment. The first one is purchasing an art piece by contemporary artist and directly selling that through some auctions or contacts. Secondly, people are interested to offer their collected artworks for display at some public/private commercial place, i.e. hotels, high-level community halls, exhibitions, clubs or offices under the strict scanner of security. The third one is to enjoy the work as much as possible then go for some lien to others and get paid. The fourth one is to “Catch them young” and maintain for a few more years to get the price. Another one is to receive the original artworks with self and selling copies with a proper arrangement with the artists or their legal representatives. Lots of collectors are cultivating different strategies to keep their interest in investment intact for Art. You can call the collection as investors hereinafter.
One thing is sure by the way, don’t treat art as an investment for the sake of getting a high return in a short time span. The art market fluctuates, and this must be understood when trying to see a return on your art investment. For instance, the contemporary art market which is most popular amongst today’s collectors is also the most volatile.
So, it seems that investing in art is not as straightforward and simple as one would hope. It is very important to understand what goes into the investment, how the art market works, and the people and strategies that will make collecting art worthwhile. Thinking through these issues carefully will help you decide if collecting art is a valid investment for you.
In India, Maqbool Fida Hussain, Vasudeo Gaitonde, Syed Hyder Raza, F N Souza, Krishnaji H Ara, Atul Dodia, Manjit Bawa, Bikash Bhattacharya, Ganesh Pyne, Tyeb Mehta, Shyamal Datta Ray, Dharmanarayan Dasgupta, Ganesh Haloi, KG Subramaniyam, Sohan Qadri, Bhupen Kakkar are having one very steady market price, when ownerships are shifting, surely there is a hefty price rise. As post contemporary artists Anish Kapoor, KS Radhakrishnan, Jitish Kallat, Bharati Kher, Raqib Shaw, Ravinder Reddy, Shilpa Gupta, Subodh Gupta, Paresh Maity are also having very good market values. Of course, we have eliminated few artists like Rabindranath Tagore, Abanindranath Tagore, Nandalal Bose, Ramkinkar Beij, Raja Ravi Verma, Binod Bihari, Jamini Roy as their works have been declared as a national treasure so sales and moving their works outside India is not possible.
So, the art market in India is not regulated at all, unlike in the US and a few European countries. For example, a buyer abroad can sell art to the gallery he bought it from. This cannot be done in India. Although the gallery may promote a new artist, he does not remain committed to the same dealer. If you are keen to invest in art, it is important to understand what the game is all about and a few basics of this asset class ‘ if we may call it so. So, Art is a good investment, no question about this. Having said that, you cannot buy art as just an investment, you have to buy it as something you like. Suppose, you own a painting of a well-known artist backed by a good gallery, chances are it will see a slight appreciation over five-seven years. But real appreciation will happen over 10-12 years.
What if you are a first-time Art-Investor? You should take advice from experts and buy only the works of renowned artists. That is, of course, if you can afford them. This is because of the availability of detailed auction history of their works. These works are often termed as blue-chips with an established track record.
Now it’s up to you, whether should you still eye the works of only the veterans, or something else too? The answer is yes. If you have a limited budget, you can also look at cheaper forms offered by veteran artists. Internationally, the art cycle lasts about nine / ten years. However, for the Indian art world and segment, the recent cycle lasts about 12/15 years.
Although the art marketplace is subjugated by the veterans, a number of emerging artists break new ground of late. Experts say you can look at investing in emerging artists whose works are available from Low to Mid Level. Though they may be a good option, it is difficult to predict who will make it big in the future. For this, you need to take advice from experts in the field before you jump to Art as an investment.
During the global financial meltdown, the works of most of the artists saw a steep fall in prices and leaders of yesteryears remained on top (See chart on valuations of progressive artists). In fact, after the recession, qualitative work is more in demand. Since there is no liquid art market, you must buy for end-use. Else, invest only if you can afford to put this money away for years to come.
Investment in Art should not more than 12%-15% of your total investments on an average; experts who are dealing in Art-Market suggest this.
Art as an investment is an excellent method for diversification. Since art prices do not depend on other possible components of a portfolio, they act as a cushion when other markets are not doing well. The aesthetic pleasure of viewing a great piece of art is also an immense pleasure and benefit. Artworks hardly depreciate in value hence proving to be a less risky investment. On the other hand, art prices are known to appreciate over a period of time and this is very advantageous.
Buy works of well-known artists if you are looking for returns in the short term. However, if you can spot talent early, your returns can grow manifold over a period of time if you are prepared for the wait. Thus for the long term, buy more of growth shares (Young Artist) whose price would be less and there is more room for growth than buying costlier masterpieces. Therefore, Last but not least; buy art only if you like the quality of work and not just the artist. And take good care of your purchase. You cannot replicate a work of art, start small, buy works of art that you prepare to live with; Returns will come eventually. It can be concluded that Art is an Investment of high-risk nature, long term horizon, with less liquid or in fact illiquid nature suitable for investors ready to take high risk. Most of the works can give you a good return if you maintain a habit to collect and preserve them by generations.
In the late 70’s one North-East Indian art lover purchased few sketches of Ganesh Pyne on Devee Durga in exchange for a few hundred rupees, which sold in exchange for nearly lakhs per piece after forty years. Same we can speak about Sohan Qadri, some of his paintings sold during his first visit to Copenhagen, fetched nearly more than thirty thousand folds in a span of nearly 3 decades. Similarly, V S Gaitonde’s works are fetching eye-catching a few thousand times returns in a span of a decade or slightly above that.
Before you think Art as an investment, respect Art, Artists, and your heritage. Try to understand their need. Not only that, when the annoying question of “value” meets the ambivalence of some in the art world (especially when the value of Art as an investment is concerned) to deal with money at all, then the obstacles to investment can outweigh any return.