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Johannesburg - Investing in art has become so popular in South Africa that Citadel has developed a model to help you understand the market value of your works of art.
The works of contemporary artists William Kentridge, Diane Victor, Billie Zangewa, Robert Hodgins and Sam Nhlengethwa reached record prices last year. The growing interest in the work of important contemporary artists has set the stage for potential growth in the South African contemporary art market, alongside the established old-masters’ market.
In addition, regardless of the declining trend in most South African artists’ prices, several new auction records have been established. From 2011 to the end of 2013, artists such as Irma Stern, Robert G Goodman, François Krige, Gerard Sekoto and Pranas Domšaitisall realised new sales records. Internationally, during the recent spring sales in New York, art to the value of least R25 billion was sold within a week at Christies and Sotheby’s.
The 10 top lots accounted for almost R9.5 billion of the turnover and included a staggering global record of R2.1 billion paid for Picasso’s 1955 Les femmes d’Alger, Version O.
The right art pieces have low volatility and potential to grow substantially in value, and, with proper guidance, investing in these pieces can yield high rewards.
The Citadel Art Price Index gives you a practical guide for assessing the state of the overall market for South African art. The index also provides a tool for art professionals to familiarise themselves with established benchmark values and market trends for South African artists’ work.
According to George Herman, senior investment strategist at Citadel, as uncertainty in the world increases, the value of all “dollar assets” is well supported, and art has undoubtedly proved to be resilient in an uncertain world.
Where to start
If you are starting out as an art investor, the choices are bewildering. Stefan Hundt, head of Sanlam Private Wealth’s art advisory service, says the best place to start is by investing in your own education. You can do this by spending time in museums and art galleries.
Hundt says this will help you identify the art that is on the market and help you identify current popular artists.
Internationally, auction houses such as Sotheby’s and Christies offer art-appreciation courses, which are typically expensive and aimed at people who want to enter the art trade as professionals. However, if you spend a great deal of time in galleries and start chatting to curators, you can start developing your own sense of art appreciation.
Where to go
When it comes to selecting galleries you want to deal with, Hundt advises that you move forward with caution.
“Certain galleries see investors as return buyers. A serious gallery will treat potential clients properly. If a gallery sells you a painting or work of art, they should be prepared to buy it back at a later stage. If they are not, you should be wary of dealing with them,” he says.
Costs
As a starting point, Hundt recommends that you budget to spend about R20 000 a year on art. You can slowly build up a private collection over time.
“The key is to remember that art is not like investing in anything else. It takes time to find the right pieces, and knowledge of the materials and work you are buying is of paramount importance.”
When you are shopping for art, remember that you need to build in additional costs such as commissions and insurance. Typically, auction houses’ commissions range from 10% to 20%. This commission increases if you buy via a gallery to as much as 40% to 50%.
Insurance
While insurers were previously reticent about insuring works of art, this view has changed over the years and most insurers now have a panel of valuators, which will include an art valuator.
However, Hundt notes that the theft of art in South Africa is minimal. According to MUA Insurance Acceptance, you should ideally insure your works of art as a specified item under your household contents insurance. If you are taking your art overseas to be part of an exhibition, you should advise your insurer and provide details of where the items are going, as well as the security measures that will be taken during transit and at the exhibition.
Tax benefits
If you invest in art and want to pass on a significant inheritance to your children, bear in mind that you don’t pay capital gains tax (CGT) on the sale of works of art, provided that they have been purchased for personal use.
This means you can leave the works of art to your children when you die and they can sell them without having to pay CGT.
Risks
Once you’ve done your homework and invested in a piece of art, you need to be aware of the basic risks. It will likely be displayed in your home, but your choice of display location carries several risks:
. Above the fireplace: This is a popular display spot, but heat dehydrates works of art to the point where the paint eventually drys up and falls off.
. Sunlight: If you display a painting in a spot that receives direct sunlight, it is likely to fade over time.
. Humidity: Identify damp areas in your home and stay away from them.
Last but not least, when you buy an expensive work of art as an investment, spend the extra money to get it properly framed and mounted, and have it revalued every two to three years.
