Investing in Art – let’s start at the very beginning …

Art expert Anna Groden answers all your questions about investing in art.

Anna Groden
Olley-Cannas-Flowers-framedIf you are considering starting, or adding to, an art collection for investment, there are several questions that might be of concern to you.

First of all, the question everyone wants to know – is art a good investment?

The short answer is yes – people have been investing in art for hundreds of years. A market for art exists simply because most people take natural pleasure in possessing attractive objects – a home does not feel like a home unless there is some form of decoration on the walls. If at the same time artworks can generate capital growth because of supply and demand, why not? Art has long been an asset class and a collectible commodity, providing investors with financial returns and years of tangible pleasure.

The current state of the art market

Prior to the GFC, art prices had been on a long-term upward trend since the 1950s (not withstanding a few bumps in the road) resulting in returns that have been comparable, sometimes more lucrative, to the stock market and other long-term investments. Such tremendous growth brought with it an increasing fascination with the art market and how it functions, with collectors varying from the young enthusiast who ventures $500 for a painting by an unknown artist, to the connoisseur who will pay millions of dollars for a work by a blue-chip painter such as Frederick McCubbin, Brett Whiteley and John Brack.

During and post-GFC, the art market took a hit that seems to have been harder than the late eighties. Whereas traditionally investors would withdraw funds from a poorly performing stock portfolio to invest in the arguably more stable, long-term art market, from 2008 investors have been much more conservative in all spending, which has resulted in art prices generally dropping. That is not to say high-end and contemporary art have not continued to sell in substantial numbers and well into the multi-millions of dollars annually. New records for artists have continued to be broken, for example, Arthur Streeton’s Settler’s Camp, sold at a May auction for a record $2.1 million, breaking the previous 2005 high for the artist of $1.8 million. Another more contemporary example is well-known Adam Cullen, who was mid-career at 46 years old before his untimely death last year. His work recently achieved a record price of $27,000 at auction, against his secondary market record in the early 2000s of $5,000.

What the current market does mean for collectors is that they can often purchase works at the lower end of the price estimate and acquire some very established collectable pieces or tomorrow’s collectors’ pieces at prices that almost have a built in growth projection to meet a more upward economy over the next few years.

Thoughts on investing in art

There are in fact more people collecting art now than in any other period in history. Traditionally collectors have invested 5-10% of their gross capital in their art collections with a focus on diversifying their investment portfolio. The difference between art and other investments is that art is something you can observe – a tactile and visual investment. While one might chose to speculate and flip artworks quickly, holding on to quality pieces for 5-10 years plus will allow the works to realise more of their investment potential, especially when purchasing art in a downward economy.

A good example of an investment artist is Margaret Olley, who was a highly successful female painter at a time when men still dominated the art realm, particularly the established institutions and as recipients of art prizes. Her work achieved an average sale price of $6,500 in 1987 and in 2010 her average painting price at auction was $53,000. This represents a growth of just over 700% over 23 years. In the gallery arena, a number of Olley works have sold in excess of $100,000 proving her work to be very a lucrative investment for collectors who acquired her work early on and in her later years.

Another example is Fred Williams, who passed away in 1982 and received much interest in the mid 2000s resulting in significant price increases for his artworks. You Yangs Landscape 1974 was offered in 2003 on the secondary market and achieved $105,000. It resurfaced in 2007 selling at a substantial increase for $264,000.

Where to from here?

Collecting involves research and education – hop online, speak to a dealer, explore local galleries. Think about your budget and what size works your space can accommodate. The more collectors explore which artists suit their tastes, the more refined their collection will become. For example, do you prefer Arthur Boyd’s Shoalhaven River paintings or his Bride series; does a Sidney Nolan Alice in Wonderland work appeal more than a Ned Kelly painting? If collectors purchase art not just for its investment potential, but because they find the work genuinely appealing, chances are when it comes time to re-sell the work, another collector will find it equally appealing.

A collection should be comprehensive – it does not need to be limited to a particular artist, style or period. Collections acquired with a view to long-term gains should include a range of artists at various price points. In this way, collectors can form a broad collection that combines blue chip investment works by well-known artists, as well as contemporary or emerging artists who are appealing and may develop into solid long-term investments depending on their popularity and resulting collectability. This is a way to diversify your art portfolio and keep the options open for culling the collection down the track.