Investment in Art

Gift Art

Buying art as an investment is a relatively new phenomenon in the Indian market, although it has been in existence for several years. Of late, people have started recognising the fact that paintings are more than just a pretty wall adornment. 

If well-picked, they also have the potential to translate into decent sums of money. Interestingly, during the time frame between 1995 and 2001, the annual appreciation in the value of investments in art was only around 5%. However, of late, it has picked up and, in the last three years, there has been an estimated appreciation of more than 10% in value. Notably, quality works have even displayed a mind-boggling 100% appreciation in price!

One key factor that has pushed up prices is the NRI proliferation, as a result of which there has been great demand for Indian art abroad in recent times. Particularly noteworthy are places like London ,New York, Singapore and Hong Kong where a large number of Indians reside.

In a sign of the coming of age of Indian art, the art world in general is sitting up and recognising Indian masters on the international platform. However, the prime driver remains auction houses like Sotheby's and Christie's which have opened up the international market for Indian art.

So, how does one go about investing in art?

Firstly, comfort can be derived from the fact that, unlike in the past when purchasing paintings was the preserve of rich businessmen and corporate houses, today's art investor includes imaginative middle-class people also.

For starters, one can simply walk into an art gallery to get a feel of things. Galleries keep a cross-section of works and you get a variety to choose from. Also the galleries will  protect you against the danger of ending up with entirely worthless works of art.   

In an artist's portfolio, oil on canvas commands the highest price, followed by watercolors, pastels, sketches and drawings, and then graphics and etchings.

However, this is merely a thumb-rule. To gain greater expertise. one would need to have a finger on the pulse of the art world.

One must also interact as often as possible with art dealers and critics besides visiting galleries frequently. Some of the basic questions to be asked before investing in a painting are :

1.     How long has the artist been painting or sketching?

2.     How many exhibitions have he/ she held?

3.     How well does his/ her work sell?

4.     Has he/ she picked up awards at any level ?

These basic questions could well be the filter that provides invaluable pointers to a future bestselling artist.

For those who understand stock markets, the best example to cite would be that established painters like M F Husain, Ganesh Pyne and F N Souza are like blue chips whose work will continue to appreciate steadily.

If you thought that makes selection easy... well, as in the case of blue-chips, not everyone can afford them. Also, the big names in the art world have probably reached their peak prices, which are unlikely to appreciate significantly. There are several good artists today whose works have been picked up for a lot less by collectors who got in early.

That is where the new artists come in.

They are comparatively cheaper but can offer huge returns at rates that are far better than those offered by the big names. The key is to identify tomorrow's dark horse. But caution is advised. Buying a new artist is like a speculative investment, where the gains could be astounding, but the risks are equally high. If you're risk-averse, play safe and stick with the masters.

While trying to identify tomorrow's art maestros, do look out for the three crucial Cs: content, continuity and consistency.

Like in any other investment avenue, diversifying one's portfolio by buying paintings across a number of artists makes good business sense. Even if one or two of those you chose actually makes it big, you stand to make a lot of money. As for the others, since you bought them because you liked them, there's always the pleasure of seeing them on your walls.

When it comes to encashing your investment, do not be in too much of a hurry. You need time to allow your investment to mature. The longer you let a painting adorn your walls, the greater its chances of growing in value. While there can be no general rule that applies here, on an average, most experts suggest holding periods of between three and 10 years, depending on how fast the work appreciates.

When you do decide to sell your treasures, the best way is to go through a reputed art gallery. It is a good idea to go through the gallery that sold you the painting in the first place, for they may reduce their commission in some cases to as little as 10%.

So, what deters more investors from flocking to this investment avenue? 

For starters, there is no insurance in the art mart. This has deterred financial institutions from entering the market, thereby precluding the option of financing art purchases. Once insurers get comfortable, financiers will be sure to follow, and that will allow anyone and everyone  to dare to dream of owning even that elusive Husain or Pyne painting.

The main principles behind successful art investment are understanding market trends, tracking new artists and being able to spot the winners early. A common myth is that a painting's market price will grow all the time. Often, the works of many great artists have been known to stall temporarily, or worse still, early promise has been belied.

Yet, if you do spend some time and effort buying the right painter, you can get a very significant return on your investment.

Trading in art is similar in some ways to dealing in other commodities, in that it is subject to very similar market pressures of demand and supply.

So, at the end of the day, there are three golden rules that budding art investors must take note of :

1.     Know the artist to buy.

2.     Know the price to pay.

3.     Know the price to sell.

If you get these three basic facts right, you can begin.

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