Before considering art as an investment, an important question arises before deciding whether to start an art collection or add one to your current collection or investment. Why invest in art?
There are many reasons to invest in art. In this blog, we will look at some reasons why. Art is not only readily available, it has many unique benefits and multifaceted value. Art is an asset to reverberate with, consume and enjoy. It impresses by adding luxury and prestige to any space in which it is displayed, has great social value, simulates discussion, and encourages dialogue.
Whether you are starting or diversifying your portfolio, you should consider the tax amount of your art. Art is a stable asset class that regularly outperforms equities and also acts as a hedge against inflation.
The fact that now is the perfect time to invest in art is another good reason to think about art as we delve a little deeper into the forenamed reasons.
Reasons to invest in art
The beauty of looking at the reasons to invest in art is that you can take each reason individually and highlight it as a good reason to buy and start investing in art, but when you look at them all together, the following will be clear and that it’s an ideal choice to invest in.
It’s easily accessible
There was a time when the art market and art investments were usually only available to a select group of individuals who already had enough wealth, to begin their investment journey. However, art investments are now easily accessible.
The online world has facilitated this change in many ways, providing access to a wide range of artworks at various points, and making it easier to find professional art investment advisors.
There are also a variety of flexible payment options available, to make your artwork more affordable than ever.
It’s something you resonate with
Art is unlike other forms of investment because it is a place where you can resonate with it and form a strong emotional connection.
In fact, the main criterion for investing in art is to resonate with and love the art you are investing in.
When you combine the love of artwork or collection with informed decisions backed by research and expert guidance has the added benefit of having an asset that you can easily relate to, allowing you to develop your asset over time, and ensuring that every single penny you is a worthwhile investment.
It has Multi-faceted Value
Art has much more to offer than just financial value. It also has aesthetic, intellectual, emotional, social, and artistic values.
Whether it’s at home or at work, there’s an unnecessary challenge and satisfaction in displaying your art collection. An investment portfolio has many benefits and values.
One of the foremost benefits of art being an investment with multi-faceted value is that it makes it much easier to vend on if you choose to give it within the future, as those same values that appealed to you may appeal to other collectors too.
It diversifies your investment portfolio
Art is the key element we can view in a diversified investment portfolio and can be viewed as an alternative form of investment, with the long-term goal of maintaining wealth as well as boosting capital.
Equally, if you want an investment portfolio that only contains an art collection, that’s also a beneficial way to invest and set future gains.
Art is reasonably easy to understand as an asset and exists in the portfolios of utmost successful investors.
It’s a stable asset class
There’s always a buyer for art and the art market has proven its flexibility time and time again, consistently dealing with uncertainty and instability in other markets.
Just looking at how the epidemic affected the art market is a great illustration of just how flexible it is.
The long-term data analysis shows that, when compared to any other asset class, art has the closest correlation to gold; making it a veritable effective investment choice for maintaining the value of your current wealth and offering the eventuality for future profitability.
It regularly outperforms the stock
As an asset that carries the benefit of continuous market growth, art regularly outperforms stocks and shares, and whilst the stock market frequently rises and falls, the art market has constantly shown its stability, as mentioned above.
Also worth noting is that from 1995 to 2020, contemporary art has seen lesser losses than stocks with recorded losses in only 4% of cases over 3 time investment periods.
It’s a hedge against inflation
Historically, art is an asset that isn’t largely affected by inflation or deflation in currency or market volatility; making it a huge deduction in risk for investing.
Whilst any form of investment carries risk and art isn’t entirely a fuss to that principle, the reality that art does act as a barrier against inflation is a great reason for considering it as an asset and then conducting some study on the art market.
Indian Art Market
The Indian art market has undergone a paradigm shift in this perspective over the past decade. We explore how art in India, despite being a seemingly reclusive industry, can play a pivotal role, and how it has gained recognition as a bankable asset class.
First of all, why do economists see art as such an important field to explore? A nation’s arts and culture represent its past, present and future in a homogenous way that symbolizes its national pride and heritage. It functions as a binding force that binds the fabric together. It has played a key role in strengthening the country’s status as a global soft power and attracting the rest of the world. Not only in terms of visitors, but also in terms of investments. The Indian art market is poised to do just that, gaining recognition over the last decade and establishing itself as a lucrative investment for new influx of wealth.
How has the Indian art market developed in recent years? The art market experienced a tremendous boom in his 2008, with works highly valued at sales and auctions around the world. The art world was no exception, and the recession continued in parallel with the global economic crisis. Despite a sharp decline, the art market has grown steadily over the past decade and recovered in just five. years. It shows a stable growth outlook. The emergence of auction houses and ‘art intelligence’ groups that carefully charted the performance of the Indian art market has brought stability to trading. It has become significantly easier to derive scientific formulas for estimating the value of a work, helping industry professionals to predict future trends in the market. These establishments, previously open to the whims and fantasies of private art dealers and undocumented trades, have helped bring some transparency to an opaque industry. Efforts of auction houses and art market trackers like this have created a structured mode of trading that allows you to make informed decisions about your purchases.
The international art market tops the tier with cutting-edge artwork selling between $250 million and $450 million. This is followed by the Chinese art market at $30-50 million and the Indian art market at $3-5 million. Prices may seem trivial, but you have to consider the fact that the Indian art market has only recently become a hot topic. As a relatively new entrant to the global art world, Indian art shows great potential for an upward movement
Recognizing the true potential of the Indian art market, major international companies such as Christie’s and Sotheby’s have established local hubs to develop closer ties with dealers and the public. However, regional institutions have played a major role in pushing the status of modern and contemporary Indian art into the world art arena.
With such an influential movement and growing awareness among art lovers, the Indian arts sector is no longer seen as vague and unpredictable, but as a viable and thriving market. With so many works of art in the limelight and so much knowledge available, investing in art became a logical decision rather than just a personal impulse. As India’s population grows and becomes more and more aware of its rich culture and locally-discovered talent, the Indian art market will continue to grow and develop to match international standards. Now is the time to take full advantage of the rising wave of Indian art and reap the rewards in the near future.
The Indian art market has experienced strong growth in recent months. Its annual auction revenue in 2018 grew 29% year-over-year, a growth rate faster than any other Asian country except South Korea. Just over 1,400 works were sold in India in 2018, with an unsold rate of just 7% – clearly not enough to meet domestic demand (the global average is over 30%). The country’s annual fine art auction revenue was $72.5 million in 2018, ranking India 12th in the global art market after ‘Australia.
Globally recognized Indian Artists
Artists that rank well in the world rankings
India’s demand for modern and contemporary art is not limited to the county’s domestic market. He is internationally famous for such famous signings as Sayed Haider Raza, Maqbool Fida Husain and Francis Newton Souza, among others. There are collectors in London and New York, and demand extends to Hong Kong and even the United Arab Emirates. Support from the international market has brought 9 Indian artists into the top 500 global artists ranked by 2018 auction revenue. The top three are Sayed Haider RAZA ($16.2 million, including $16.2 million). including a work that grossed over $4.4 million in 2018), Tyeb MEHTA ($15.4 million) including an annual record of $3.9 million), and Maqbool Fida HUSAIN ($12.3 million) ). Other big names in the Indian market are Anish Kapoor, Akbar Padamsee (1928-), Manjit Bawa (1941-2008), Ram Kumar (1924-2018), Francis Newton Souza (1924-2002) and Vasudeo S. Gaitonde (1924- 2001).
Mumbai, India’s Auction Capital
Recognizing India’s great growth potential in the global art market, two major Western suppliers, Christie’s and Sotheby’s, have both chosen Mumbai to grow their sales in the country. Indeed, Mumbai’s thriving art scene (with artists like Shilpa GUPTA and Jitish KALLAT) and its structured art market (with auction houses like Asta Guru and StoryLTD) have made the city became the obvious choice for Christie’s first India auction in December 2013. Dedicated to South Asian art, it was a huge success with 98% of the lots sold. However, since then the company has significantly slowed down its operations in India. Following Christie’s, Sotheby’s opened an office in Mumbai in 2015 to develop stronger relationships with Indian buyers who were already very active in Western sales. Their first sale, Boundless India, took place in November 2018 and focused on Indian artists, the only truly sought-after signings in India. It will take time for major collectors in Mumbai, Delhi or Calcutta to invest in Western art with the same passion as they do with Indian art.
Delhi, India’s Art Fair Capital
In the heart of the Delhi metropolis, the art market is essentially driven by two main players: Saffron art for the secondary market and the Indian Art Fair for the primary market. Founded by Neha Kirpal in 2008, the Art Fair of India offers a great panorama of modern and contemporary Asian art, and greatly contributes to the development of the local market. direction. Indeed, the fair looks so potential that MCH Foire Suisse (organizer of Art Basel) in 2016 announced the acquisition of 60.3% of Seventh Plane Pvt. Ltd (the organizer of the Art Fair of India). The powerful Swiss conglomerate is firmly positioning itself in the Indian market while rejecting any wish to launch the new Art Basel in India. But recently, MCH decided to sell its stake (and its stake in the Düsseldorf Art Fair and the emerging Art Theatre Partnership in Singapore). Frank Lasry, CEO of MCH Design & Regional Art Fairs, emphasized that the decision to withdraw from the Indian Art Fair in no way reflects the lack of success of the fair, on the contrary, it attracted around 40,000 visitors. each year. MCH has clearly decided to reposition new strategic investments, but has announced that it will not withdraw from India’s leading art fair until it finds a suitable new partner. The comments are clearly meant for peace of mind.
Of the 75 exhibitors, Indian galleries make up the majority. The program also attracts participants from all over Asia. A handful of galleries in Europe and the US are making the trip, including David Zwirner, again this year. Overall, however, the fair hosts relatively few foreign galleries, discouraged by high import taxes. The artistic ambitions of the Art Fair of India, again this year, promise discoveries and encounters, especially through the city’s museums and galleries, with a specific programme. Possible: IAF Parallel. The vitality of the event also reflected in its ability to mobilize all cultural and institutional players in Delhi.
Art Investment Risks
Investment in art is a component of what’s called “alternative investment,” i.e., investment aside from stocks, bonds, or cash. Such investment has some typical characteristics: the present market price is difficult to evaluate; compared to financial assets, such objects are more illiquid; the knowledge needed before investing is substantial, and therefore the cost of purchase and sale is also high.
The art market shares these characteristics. Almost half of all transactions have been judged to occur at auctions, the opposite half are handled by art dealers. Auction prices dominate the market as they function as guidelines for art dealers. While transaction costs on financial markets typically are below 1% of the worth, in auctions the vendor and buyer should pay a commission between 10% and 25% of the hammer price. These costs are often disregarded when estimating returns on art investments. Dimson and Spaenjers are an exemption: When considering transaction costs at the sale of 25%, the investments in expensive British stamps, as a kind of art investment, must have a holding period of a minimum of 4 years to succeed in a positive return after costs, compared to equity with < 3 months on the average. In most studies on the art market, we must consider the estimated return a boundary before transaction costs. Transaction costs are, however, crucial when considering art investments. It is an open question whether the economic process exerted by web-auction houses like artnet.com, artprice.com, or eBay-Art can sustainably reduce transaction costs. Generally, these web auction houses offer better access for sellers and buyers to auctions further as lower transaction costs. They vary between 5% and 10% of the worth fetched, betting on the number of costs and also the number of lots sold.
Besides transaction costs, they confronted buyers of the art objects with special risks of price variability. The primary set of risks refers to the art object itself. The customer can never make certain whether the thing gained is creative or whether it’s a duplicate or an outright forgery. This can not always be an issue. In Asian art, yet like orthodox icons, copying is commendable, because it expresses honoring the past. In Western art primarily sold at auctions today, authenticity is a very important feature.
Similarly, attribution incorporates a strong influence on the prices of art. Whether the master himself, the circle, the school, or whether making a painting, it’s only the variety of a grand master that is crucially important. Frey and Pommerehne report the story of the painting “Daniel within the Lion’s Den”. In 1882, the work was sold at Christie’s London for £1680. After the attribution of the painting to Jakob Jordaens, they sold it in 1963 for less than £500. Two years later, the New York Metropolitan Museum bought the painting for £178,600 after the work was attributed to Rubens again.
Another specific feature of art objects is their quality. Over the centuries, many paintings have suffered and are repainted. Such manipulations reduce the costs paid. The risks just mentioned are substantial within the art market but are nearly absent from the financial market nowadays.
In addition, the buyers of art run the chance that the item in their possession can either be stolen, destroyed by fire, in wars and revolutions, or is also the target of terrorist attacks. To protect against a minimum of several risks, the art object is also insured but the premium to be paid is substantial and lies between 0.1% and 0.5% of the artwork’s value.
The second set of risks of special importance within the art market refers to unforeseen public interventions. Governments may simply seize art objects claiming that they’re a part of “national heritage.” They will change the sales or land tax or change the property rights away from the owner to the artist who created the art object. Governments might also impose new export restrictions.
The third set of risks is shared with other investments but may affect the art market more strongly than financial markets. William Goetzmann, Luc Renneboog, and Christophe Spaenjers present evidence that a 1% fall in income of the earners within the top 0.1% income distribution within the UK triggers a fall in art prices of just about 10%.
The fourth set of risks refers to the unpredictable changes in tastes and fashions prevalent within the art world. Extreme heterogeneity characterizes the art markets. Perceptions play an excellent more important role than financial markets, as they reflect purely personal preferences.
A final set of risks is because of the important role behavioral anomalies are likely to play within the arts. There’s certainly a stronger ownership bias than is the case with financial instruments: once a collector owns a chunk of art, he or she establishes a special relationship with that and is unwilling to sell it. Collectors also tend to shop for art produced by domestic artists. This home bias seems to be larger than the equity home bias in financial markets. There may additionally be more pronounced herding behavior on the buyers’ side than on financial markets because, as William Baumol notes in his seminal article, art objects don’t have any “natural” value, which might be used as a point of reference for his or her valuation.
To Invest or Not to Invest in Art?
Investments in financial assets normally yield only a monetary return, while the possession of art additionally yields a psychic return because of the pleasure and social esteem of holding an artwork. In a very competitive market, they equalize the rate of return. The financial return must be smaller than in other markets where no such psychic return exists. As an investor, it’s impossible to reliably forecast the financial return on any market. In contrast, the psychic return as an art collector is far better predictable. This can be a vital incentive to have interaction in art investment.
Frequently Asked Questions
- Why art is a good investment?
Art is a tangible asset, and it can perform well during periods of inflation, and it’s not as susceptible to market fluctuations.
- Which is the most expensive art ever sold?
The current record price is US$450 million, paid for Salvator Mundi by Leonardo da Vinci.
- How old is the oldest art?
Upper Paleolithic, the oldest known figurative art painting, is over 40,000 years old.
- What makes a painting expensive?
An artwork’s origin, the documented history of whom it belonged, is a huge determining factor in making paintings valuable.