When is art an investment?

People talk about art as an investment, but Stephen Welz, director of newly formed fine art auctioneers Strauss&Co, argues that in a pure sense, art is not an investment.

Art does not generate dividends or interest and in fact costs you money to maintain. The value is often only truly recognised when it is sold.
The capital value is the only upside and as a result it is a store value rather than an investment.

Art is an asset class which can provide significant returns but usually over a long time period—the average collector holds on to their art work for around 27 years.

The best way of approaching this asset class is to see art as an interest which has the potential of becoming very valuable. It is one of the few interests or hobbies where you can educate yourself while at the same time create an asset base of great value. The key to developing a valuable collection is through education and talking to the experts.

Weltz says if you want to start an art collection, stick to the recognised artists. In much the same way as a share portfolio should be made up of blue-chip companies. A good auction house or gallery will be able to offer advice on who the recognised artists are and what they are worth. But research is also important. This can be done by attending auctions and gauging the prices certain artists command.

Mary-Jane Darroll, director at Strauss&Co and former curator of Everard Read Gallery, argues, however, that there is room for new artist in a collection. One may invest a small portion of your portfolio in newly listed companies, a well-chosen newcomer can increase significantly in value.

But this is not for novices and it is, as with investing in a small company, even more important to do ones homework. New artists also create opportunity for the smaller budget collector. Weltz says if you are buying into the blue-chip league you need a starting investment of R50 000.

Darroll says for half that amount you could pick up a new artist, however, the risks are far higher. The risk with new artists is that sometimes their prices can be overinflated because they are still to be tested in the auction environment, typically selling through galleries, and they are harder to re-sell.

Welz says there is no scarcity with the artist still producing and the galleries stocking more than 30 of the artists paintings. He says if the new artist leaves the country, the value of their work also declines.

Ultimately an investment in a new artist takes a long time to materialise. But when it does, the payoff can be immense.

Darroll says that a William Kentridge etching in his early days sold for R8 000, today that is worth around R500 000. But not every new artist is a Kentridge and is far more likely to remain in obscurity than to succeed.

Francis Antonie, managing director at Strauss&Co, says it is a myth that only the rich can be collectors. There are numerous famous collections which come from ordinary people who had a passion for art. For example, a bookkeeper built up a collection worth millions of rands, yet he never owned a car because he could not afford it. He built up the collection over many years as a passion and the right choices helped him make the money.

‘It is not just about affordability. It is about choice. Some people would rather buy an artwork than take a trip overseas,” says Antonie.

Welz says people will buy a painting because it matches the curtains. But with a bit of homework they can ensure that the work provides both aesthetic beauty and wealth creation.

The key is to make that personal decision within a framework of knowledge and education.

While an art collection may not be ideal for your basic retirement plan it certainly, can over 30 years, develop into a very valuable asset.

Darroll says many of their clients are people who are retired and are selling their collections to realise the asset.

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