Art as Investment

Recently, auction house Christie's announced it would hold its inaugural auction in India this December. It would be the first international auction house to conduct sales in India. In recent auctions, Sotheby's sold a painting for $30 million, while Christie's sold 66 paintings worth $495 million.

These reports make one wonder about the benefits of investing in art.

As an industry, art has always been underrated and undervalued. Of late, its awareness has been increasing. In terms of being a commercially viable sector, art is still nascent and unconventional. Investments in art are extremely vulnerable, as these primarily depend on public taste. You can never guess the right price or the right time to buy or sell a piece. Bhavna Kakar, owner and founder of Latitude 28, an art gallery in New Delhi, says, "Art is not a commodity like property, stocks or gold, and it is best that way. Buy it only if you love it and can live it; else, stick to conventional investment options."

The Indian art market is expected to see enormous growth through the next 10 years. "People have become used to hearing about multi-million dollar sales of works by Tyeb Mehta, S H Raza or M F Husain. Now, the art market is viewed by many as an active commercial sector, with auctions and exhibitions held all over the world," says Harry Hutchison, associate director of the Aicon Gallery, New York, a premier art gallery in the US selling Indian art works.

When asked about art as an investment, Anu Ghosh Mazumdar, vice-president (Indian and South East Asian art) at Sotheby's, said, "We do not encourage people to buy art as an investment. Rather, we encourage them to buy what they love, so that they can live with their art works despite the vagaries of the market. Art has a legacy; it is much more than mere investment."

To buy art as an investment, one should have good knowledge of the artist, the medium, the time period, previous buyers, the category, etc. Menaka Kumari Shah, country head, Christie's India, says, "The best investment is to buy what you like and then, regardless of its value, you still have a work of art you like. We always advise our clients to buy the best work available in their budget, and buy with passion for the art."

Kakar says though entry prices for works by some artists have plateaued, one should also consider those yet to make a mark and whose art comes at reasonable prices.

An important question is when is the right time to buy and how does one know about it? If you are interested in buying art, you should be in constant touch with art galleries and auction houses. "Some pieces come in the market only twice in 100 years, and these will always be desirable, no matter in which cycle the market is in," Shah says. However, some say anytime is a good time to buy a piece of art. "There is never a best time to buy. If you like it and want it on your wall, now is the time," Kakar says.

To own a piece of art, one must have very deep pockets. Prices could vary from $1,000 (Rs 64,032 at a rate of 64.03 against a dollar) to millions, depending on the medium and the size of a work. For modern art, one might have to spend at least $30,000 for a canvas and $2,000 for a drawing. Each auction has a minimum bidding price. At Sotheby's, the least price for an art work is $5,000. But some auction houses such as Saffronart and Astaguru have no reserve auctions; so, bidding starts at really low prices.

Hutchison says, "With regard to contemporary art, one can buy terrible street art for very little. But art that might, in the future, be worth investing in would cost more, as the odds are not in your favour of selecting a large canvas from a soon-to-be-super star at his/her first solo show for a cheap price. By the time they are on your radar, they would co st more to invest in. I would estimate at least $1,000 for a drawing and $3,000 for a canvas but depending on the size of the work, this figure could, of course, go up."

In case one doesn't have this much money, there are other ways in which he/she can be a part of this segment - one can lease art, accumulate credit and eventually buy the piece through companies such as Art Remba, which allows members to rent art pieces from top galleries and artists for their home or office.

Returns on investments (RoIs) for art work are never fixed. Those involved in this sector say if one wants fixed RoIs, they should stick to investments in real estate, stocks or gold. RoIs in art depend on the artist, the chain of ownership and the art time cycle, among other factors. "A person should own an art work for at least five years before selling it. Also, returns vary from 20 per cent to 200 per cent," says Ajay Seth, chief mentor at Copal Art, an art advisory board and bank that researches, procures and makes Indian art works available to clients. He adds the rate of price appreciation for an art work is 8-10 per cent a year. So, the longer one owns these, the more price he/she gets. Hutchison agrees. "In most cases, one shouldn't look for returns before the five-year mark. Also, one should not invest more than 18 per cent of their net worth in art."

It isn't necessary to buy art physically; one may also invest in units of art funds electronically. The rise in demand for Indian art has prompted a few art houses to launch mutual funds to enable investments in the art market. For instance, institutions such as Copal Art, Edelweiss Securities and Osian have launched such funds. International organisations such as Aicon Gallery also have various art funds, though the response to these is varied. While Seth from Copal Art says he is against the concept of art funds in India, as the art market here isn't big, Aicon's Hutchison says art funds are very successful. After its first art fund, two others by Aicon are up and running.

But art funds are risky, too. Osian art fund, started by Neville Tuli in June 2006, had to be wrapped up in 2009 after a poor performance. It had also faced a probe by the Securities and Exchange Board of India and is still in the process of returning money to investors. In recent times, Fine Art Fund (www.thefineartfund.com) has been one of the most successful. Its stock comprises impressionist, modern, contemporary, post-war and old-master paintings.

Art is an illiquid asset, which might not necessarily generate income. It needs maintenance, proper storage and security, all of which aren't cheap. "The key is to familiarise yourself with the works available and take plenty of advice. Any investment can go up or down, and a lot of the possible upside can only be realised after many years of owning and enjoying a piece," says Shah.

To reduce the risk involved in art investments, Seth says one should consider three important aspects - prominence and authenticity of the artwork, the entire chain of its ownership and the title of the art work.

So, if you like an art work and think you could own it for life, go ahead and buy it. Get to know the work and have passion for it. A good piece of art is a treasure to behold.

Apoorva Gupta in Business Standarad
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