|incent Van Gogh’s 1890 Still Life, Vase with Daisies and Poppies|
“In the last five years, we’ve seen a dramatic change in what collectors from Asia are looking to buy,” says Suzanne Gyorgy, Global Head of Art Advisory & Finance, Citi Private Bank, “Five years ago there was not much interest in Western art, and that has changed. We go to auctions, bidding on behalf of our clients there and watching the room, and it’s undeniable that specialists representing Asian clients are very active in those sales of Western art.”
“We also have clients from China, going to New York where we organize for them tours of galleries, auction previews and museums. They are getting exposed to the best and their interest is really genuine and really growing. I would say the knowledge and education of the Asian clientele [in Western art] has grown in leaps and bounds,” Gyorgy adds.
Asia currently has an estimated 492 billionaires, with 184 living on the Chinese mainland and another 53 in Hong Kong and 24 living in Singapore, according to the Knight Frank Wealth Report 2015, and art as an investment of passion remains firmly on their radar. A separate report by Wealth-X released in March during Art Basel in Hong Kong, estimated that the combined value of the collections of the top 10 art collectors from China and Hong Kong is worth about $2.57 billion, often a fraction of their net asset value. For example topping their collector’s list was Wanda founder Wang Jianlin with assets worth an estimated $27.5 4 billion and an art collection worth an estimated $1.2 billion, while Shanghai Zendai Investment Group founder Dai Zhikang’s assets are estimated at $1.3 billion and his art collection is worth $80 million.
Magnus Recht, founder of Larry's List, an art market knowledge company, estimates 18 per cent of the global collector scene is now based in Asia, more than one third of it in China. “Beijing is the largest collector city in Asia with a share of 14% of Asian collectors. Seoul comes second (12%) and Singapore third (7%)," he says, noting that “forty-five per cent of the collections were founded between 2001 and 2010, and five per cent in the three years since 2010."
According to the TEFAF Art Market Report 2015, released in March, the global art market raked in over €51 billion ($53.9 billion) last year — a seven percent year-on-year increase that finally took the annual sales figure above the 2007 pre-recession high of €48 billion — with three major art markets dominating activity: the US (39%), China (22%) and the UK (22%). The author of the report, Clare McAndrew, noted the art market last year reached its highest ever level of sales with continuing strength in Modern and Post War and Contemporary art, but it continued to be a “highly polarised market, with a relatively small number of artists, buyers and sellers accounting for a large share of value,” though she also noted “a promising trend counteracting this to some extent is the growth in online sales, which has encouraged a greater volume of sales in lower-priced segments.”
International rivals have picked up some market share from Chinese mainland auction houses when they entered the market. According to UK based art market research company Art Tactic, over the last two years, Poly Auction and China Guardian’s market share fell from 53.7% in 2012 to 47.8% of the market in 2014. Yet Sotheby’s and Christie’s are still struggling to get a foothold in the Chinese mainland market, having failed to create any significant inroads into this market, it noted in a recent report. Sotheby’s sale in autumn 2014 was 46% lower than its Spring 2014 sale and 68% lower than Autumn 2013, while Christie’s Autumn sale in Beijing was 14% lower than the Autumn 2013.
ArtTactic founder Anders Petterson said that “although we’re seeing more Chinese collectors buying Western art, I don't see this as the reason for the market slowdown” in China. Instead, Petterson believes “slower economic growth, government anti-corruption measures and tighter regulations around the art investment trust market in China are the main reasons behind a dampening of the market.”
This is confirmed by data from the Art & Finance Report 2014, prepared by Deloitte Luxembourg and ArtTactic, which showed that China’s art fund and art investment trust market slowed rapidly from an estimated $529 million in 2012 to an estimated $169 million raised in 2013 (latest available figure), following stricter government regulations on the Chinese shadow-banking market.
The report pointed out that 76 per cent of art collectors around the world are buying art for collecting purposed, but with an investment view (up from 53% in 2012), implying that the investment aspect of art buying is something that collectors are “increasingly concerned about.”
For Mohit Mehrotra, Deloitte’s Global Wealth Management Group Leader, a couple of important developments are driving the strong current interest in art. “The first generation of wealth was really about creating and accumulating, but we’re now with the second generation and they are more about appreciating the finer things in life and spending their money,” he said.
But Mehrotra also noted that with new regulations on the automated exchange of information on CRS (that will lead to greater tax transparency when it comes to offshore clients), many clients are exploring greater exposure into art and collectables in their portfolios to minimize the impact of tax transfers in 2017‑ 2018. “Art will give them a different way of managing their portfolio out of keeping it all in liquid financial assets, which will be a lot easier for people to declare.”
Petterson notes that while investment is a “strong motivation among Asian art buyers,” it is by no means a trend exclusive to the region, “but one that has evolved globally over the last 10 years.”
Gyorgy also points out. “For better or for worse, in the last five years, there has been a general ‘financialisation’ of the art market.” The private bank offers clients advise on how to build an art collection that will stand the test of time and she says art advisory has been a growing business for the bank around the world. But she’s also quick to add “we’re really not advising clients to buy art as an investment. We’re all museum-trained and when we’re talking to clients we’re really advising them about how to build an important collection, so it’s the art for art.”
Petterson notes that an investment in art should be “a long-term endeavour, otherwise you are susceptible to being caught up in the fads and short-term cycles of the markets. Unless you can afford to take at least a 10-year view on the market, you should probably stay away from art as an investment. Art for pleasure and enjoyment is a different thing.”
Patricia Amberg, head of UBS Art Competence Centre, points out that the art market remains heterogeneous and about which very little data are available. “Only the hammer prices achieved at auction are public. This excludes the larger part of the art trade: galleries, dealers, private treaty sales, online platforms and all the rest. Auction prices therefore only represent about a third of the art market at best, making it one of the most non-transparent markets,” she adds, “we always recommend that clients collect art for the love for art itself.”
The Mei Moses World All Art Index, which is widely considered as a key index, showed a compound annual return of seven per cent between 2003 and 2013, slightly below the S&P500’s total return of 7.4 per cent. But post-war and contemporary art, as well as traditional Chinese works of art delivered compound annual return of 10.5 per cent and 14.9 per cent respectively.
According to the 2015 outlook report by ArtTactic, 65 per cent of experts surveyed believe contemporary art market sales will level out this year, though 35 per cent feel the market has further upside potential. So far, no one expects an art market correction within the first half of 2015, which might come as a relief.
“Although weaker economic growth might lead to slower art sales in the mid- to lower-price segments, the ultra-wealthy are expected to continue their trophy hunting at the top end of the market,” Petterson says. “This is supported by the fact that 73 per cent of the experts are positive towards the $1 million + segment. However, the higher end of the middle-market could rekindle as buyers are picking lower-hanging fruits in the hope that these artists will be promoted to the millionaire league. Expect another year with new auction records,” he says.
AS FIRST WRITTEN FOR SINGAPORE BUSINESS REVIEW (July 2015)