Art Investment Overview
Bored of the same old asset classes out there to invest in, thinking about trying something new?
How about … art?
Understandably, you might be slightly apprehensive about getting into something rather unfamiliar. After all, investing in art is something relatively new in Malaysia – up until 10 or 20 years ago, very few were even aware of opportunities in this asset class.
However, as more investors look to diversify their portfolios, art is swiftly acquiring a reputation as an alternative investment. And even in Malaysia, with the advent of more local galleries, more local artists, more corporate art collectors and more affluent individuals investing in art, the idea of art as a potential investment class is beginning to appeal to the masses too.
Why art? One might ask. Well, fine art embodies certain sought-after investment qualities. It’s a tangible asset, so it has appreciation value. It’s moveable and can be easily transported. And best of all – art transactions are not necessarily traceable. From a tax perspective that certainly has some benefits.
“But I’m not qualified – I know nothing about art” you might say. However, contrary to popular opinion, there is no “barrier” to being a collector of art for investment purposes. With the right amount of knowledge, research and guidance, anyone can find a good piece of art to invest in to suit their individual budget and taste.
Be aware though that collecting art for investment purposes also takes passion, perseverance and patience. So perhaps the only true prerequisites to successfully investing in art, are a keen interest in art and a willingness to do the right amount of background research to enable you to be a “knowledgeable” collector.
Collecting art for investment does not involved buying any old piece of art at random and hanging these pieces up on every available space at home. You need to be able to properly research and evaluate an individual work of art that you are interested in. In order to train yourself to be a serious collector, you also need to be able to develop an eye for choosing each individual work in such a way as to form a strategic grouping. A sophisticated art investor will be able to assess how the artist, the piece, the medium, and the subject fit within secondary market indices, art world trends, and artistic movements.
Building a collection comprising strategically-grouped works is a good way to ensure that the entire collection appreciates over time and gives the collector long-term returns on his investment activity.
Here are a couple of simple steps to get you started:
- 4 Simple Steps to Investing in Arts
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Step 1 : Work out what you like; be true to your passion
Have you ever had the experience of looking at a piece of art –whether at a gallery, inside a building, or at the home of a friend – and feeling totally mesmerized by the sight of it? Has any piece of art ever “reached out” to you?
If so, then you probably already know what kind of art ignites your passion. Ask – why do I like this piece? Do I like the subject matter, what it represents, the way it is composed? Am I inspired to feel differently about life when I look at it?
If you’re still not quite sure, well, the eye can be trained to seek out what appeals to it. Visit galleries and spend time immersing yourself in the local art scene. There are a host of galleries in the KL and Selangor area alone – here are links to some of them below.
Step 2: Work out what you can afford
OK, so as an average newbie art collector for investment, you are probably already aware that you are not going to be able to afford a piece of rare, fine art dating back to the 15th century worth several million Euros. But, one can still aspire to acquire a masterpiece one day though!
Meanwhile, it is best to start small, and work out a reasonable budget for your first few art pieces, especially at the initial stages – on a 1 year, 3 year and 5 year timeframe. Don’t forget to build in your expectations as to how much you can put aside for investment in art, in addition to hidden costs not visible upfront – such as taxes, costs of framing (if needed), transportation, insurance (very important), as well as restorative care in the event of wear and tear/damage.
Auction houses sell the highest-end stuff. Look at galleries and art houses to see what their best stuff is and compare price ranges. See what you like, what you can afford.
Build relationships with staff, gallery owners, ask questions, show your genuine interest. Collecting art is also a relationship play. Successful collectors build relationships with the artists they support and take the time to understand the things that inspire the artist’s work.
Step 3: Research your investment
An aspiring collector should be looking at investment-grade art, not run-of-the-mill decorator art that has no intrinsic value. It is important to be aware of the distinction. Decorator art might be found in a hotel lobby or a shopping complex. Investment-grade art is what you find in major museums or galleries.
The artist would already be relatively well-known and would have a good reputation in the industry. There is already a value for such a piece. The value may fluctuate, but a mid-to-long term trend is already visible. In the long run, such a piece can reasonably be expected to appreciate.
Be ready to do your homework. Ask questions such who is the artist and where is he/she from, where did he/she study art, or is he/she self taught? What kind of press has he/she received? What exhibitions has he/she held? How well known is he/she? Also consider – what drives the artist, what has inspired the artist’s chosen subject matter?
Also give some thought about the manner in which the piece you are interested in, fits into your existing or planned collection. How best should you connect one purchase to a subsequent purchase, and how should you organize your pieces for display and presentation purposes?
Next we come to the work itself. Check its condition – is there any sign of damage or repair? Is it signed, or is there alternative proof of authenticity? Is the accompanying documentation in order, or is there vital information missing? All these things can impact the current value of the piece and its appreciation potential.
Step 4 : Work out how long you can hold for
Malaysian investors have a penchant for the “buy and flip” mode of investment – gleaned from years of buying and selling stocks, and speculating in the property market.
Right up front, it needs to be understood that this type of mentality is not suitable for investing in art.
Art is very much a buy-and-hold play. You have to be prepared to commit to building a collection for the long run, and watching the value of your pieces grow both individually and collectively.
Hopefully, the information and steps provided above will get you started on what could be an extremely rewarding journey both from a financial, and an aesthetic perspective. Investing in art can bring the investor not just monetary gains but hours of joy and pleasure learning about and viewing, the art pieces which you have personally chosen and with which you have developed an emotional connection.