Alternative Investing

Art Hopes for Colorful Returns

Karen Tso,|Squawk Australia Anchor

It's hard to find a picture perfect investment especially when the landscape is clouded by a global financial crisis, but hanging in the group of assets waiting for a lift in 2009 is art in Australia.

Caterina Toso

The dash for cash prompted a downturn in shares, property and art but while Australian equities have bounced and reclaimed year highs and some parts of the real estate market, at least in Sydney, are hot again - investors are still yet to get creative, leaving art prices and sales languishing.

Perhaps part of it can be explained by the scars investors are still carrying from holding less liquid assets when the credit crunch hit.

Here is a snapshot of how much canvas turnover has declined: back in 2007, art sales in Australia topped $175 million, then dwindled to $111 million in 2008, and now in 2009, unless there is a pre-Christmas rush, may not even reach $100 million, with the number for the year sitting at just $68 million so far.

Prices too have been hammered at auctions, with the magic million dollar mark proving elusive this year. Dealers say one reason is because super quality works have been hard to come by, with owners reluctant to sell in tough times.

But auctions have still attracted headline as for instance Arthur Streeton, George Russell Drysdale, Sidney Nolan pieces have been sold. 

It wasn't until September that the hammer fell on a million dollar bid. Auction house Deutscher Menzies sold Brett Whiteley's The Sunrise, Japanese: Good Morning! for $1,320,000. Estimates pre-auction were for between $1,100,000 to $1,400,000 and were considered conservative, indicating prices are still well off the highs.

The Sunrise, Japanese was in fact part of a group of paintings sold by millionaire Tasmanian mathematician and art collector David Walsh. It last fetched $764,500 (including buyer's premium) in September 2004. Some estimate that major artworks are still being discounted by roughly 30 percent.

The Magic Million

In the past, Australian buyers haven't shied away from forking out funds for serious art investments. In 2008, seven works by Australian artists sold for over $1 million and in the heady boom days in 2007, the comparable figure was 22 works.

Brett Whiteley's The Olgas for Ernest Giles sold back then for $3,480,000, which is still the highest price tag achieved for local art. But with an improving economy and equity markets, auction houses are becoming confident that art markets have seen the worst. In fact art dealers say there has been a noticeable improvement in interest and activity since September.

Is Art the Picture Perfect Investment?

Stronger turnover is particularly evident at the lower to middle end of the art market.  Independent Art Auctioneers which deals with artworks priced in the $500 to $30,000 says it's not the best time to sell and only do so if you have to, but on the flip side it's a good buyers market. 

And perhaps history is a good guide, because traditionally after a stock market crash an art boom has followed. At this end of the market, activity is recovering but prices are yet to touch the heights and are about 20 percent off their peak, which offers attractive upside according to industry insiders.

Tips for Investing in Art:

  • Time Your Entry. Buying art is no different to other investments - your return depends on the entry price. Earlier this year prices were down some 30 percent on major art pieces, and although the art world is no longer as depressed, prices are still relatively cheaper than they've been for a couple of years.
  • Know What You're Buying. A key principle in choosing art is that it's recognized by the art houses. For reliable returns stick to the names known to auctioneers such as Sotheby's, Deutscher Menzies and Christie's - artists on their catalogues have a proven track record, so there is clarity around price and you know there are ready buyers.
  • Look at the Middle Art Market. Recognized art in the $500 to $30,000 category is still down 20 percent, leaving potential for returns down the track. It's also a lower entry price and won't leave you too leveraged to the art market.
  • Enjoy Your Investment. Chose a piece you like. You'll have to look at the investment for years while its value appreciates, but chances are if you like it, so will others and it should be easier to sell down the track.