Art is viewed as good investment option today

Article by Nalini S Malaviya
The Economic Times (Tribune Business News); 11/25/2005

Art is being viewed as an investment option. There are many factors that go into making art pay off as a good investment. Harish J Padmanabha, an art collector and chairman, Forbin Poly Glass, shares his thoughts on how art works for investors.

QUESTION: Is investing in art a new trend?
ANSWER: Not really. Earlier, it was the domain of a few, whose awareness and passion led them to collect art while the investment angle was secondary. Now that the contemporary art market is buoyant there are more investors. The media, publicity and hype have also led to an increase in art investments.

Q: How does one decide which artwork to buy?
A: One should not confuse the value of artwork with its price. One should gain knowledge by constant visits to art exhibitions and sales, galleries, art magazines, auctions and the Internet. Be careful that even mediocre art can be propped up price wise. One is always safe investing in art of established artists, but then, they come at a heavy price.

Q: What are the factors that influence the market price of an artwork?
A: It is an intricate process and several factors are at play. Primarily, the art itself should have its own strength, originality and intrinsic value. It also depends upon the medium, (drawings, watercolours, pastels, oil or acrylic on canvas, graphic prints, sculptures etc) seniority and name of the artist, the promoter and gallery. From an investment point of view it is prudent to watch and follow works of artists being promoted by an established and popular gallery, since they will see to it that the prices appreciate.
More importantly these days 'signatures' sell in the art market. The theory of 'demand and supply' holds good here too, especially in auctions. If in an auction, the works of one or more artists is flooded then the prices come down. To some extent hype and being media savvy contributes to the price.
A 'one time' initial sale of a work by a new artist in a debut exhibition need not necessarily determine that price. This I term, as an anology 'primary market' akin to the IPO of a stock in the stock market. It is the subsequent sale or sales of the same work, which I think determines its true value in pricing. This I call the 'secondary market' as in the stock market. The more a work of art gets sold and resold in the market place its price is bound to appreciate.

Q: How long does it take for a work of art to appreciate?
A: Till about four years ago it took a fairly long time. Since the past couple of years there is a greater appreciation, but one can't exactly predict the time frame as several factors are involved -- and not all works of all artists appreciate quickly. By and large works of established artists appreciate faster. Some of the crucial factors are works being sold at popular auctions around the world, art camps being held at important venues, knowledgeable curators, and coverage by art critics.

Q: Where does art fit in an investment portfolio?
A: It is an important option in one's investment portfolio albeit for the discerning. To some extent I believe it is esoteric, although I feel it could be positioned between conventional investments such as stocks, shares, bonds, securities, gold and real estate.
In stocks and shares one can start with a relatively small investment whereas real estate calls for larger investments. One should remember that investment in art does not have the ease of liquidity that stocks and shares have or for that matter real estate has. Added to this the hassle of maintaining and preserving the artwork since they are highly susceptible to damage due to moisture, humidity, insects, rodents, ultra violet ray degradation, scratch and tear, breakage, transit damage etc.

Q: What percentage of one's investment should go into art?
A: That's a personal matter. One must remember that in general investment in art is a relatively long-term proposition for the average investor. The relative liquidity in art investment is slow although of late there are instances of speculative trading in art. Some investors are commissioning and underwriting works of some mid-level artists, stocking them, pushing the prices up and disinvesting.

Q: For whom is it a good prospect to invest in art -- high net worth individuals or small investors?
A: I would say until a few years ago investing in art was for high net worth individuals because sales in the 'secondary market' was quite low, therefore, telling on the liquidity.
Now with transactions in the secondary market picking up even relatively small investments can be thought of. However, the down side of it is, prices of good art have skyrocketed in the past couple of years. Perhaps, one could start with an initial capital of about Rs 10 lakhs and progress thereafter.