Dollars & Sense
PUBLISHED : Friday, 30 May, 2014, 8:50pm
UPDATED : Friday, 30 May, 2014, 8:50pm

Investing in European masters means more bang for your buck

BIO

Reenita Malhotra Hora is a financial journalist based in Hong Kong. She is a presenter/producer for RTHK Radio 3's Money For Nothing, a live daily radio show about finance and investing and its award-inning storytelling show, Asian Threads. Reenita has contributed to the South China Morning Post, the Wall Street Journal, New York Times, CNN, Asian Investor, Times of India and the Economic Times. She is the author of three non fiction books and a humorous fiction novel: Operation Mom - How I got my mother a life and a man. Reach her on Twitter @reenymal
 

I've toyed with the idea of purchasing art as an investment for several years but for one reason or another, I always chicken out in favor of putting my money into the usual suspects – stocks or ETFs.

Not that I have a crystal ball or that those are particularly reliable assets.

If it's reliability you are after then art advisors will tell you that fine art is a highly sought after asset, collected not just for aesthetics or historical importance, but also because it is a genuine and dependable investment.

Hmm. Really? Many of us who love art for its aesthetics struggle with this idea. That said I'm beginning to think that it'll be a matter of time before art is snapped up by the more investment savvy.

In fact things have changed big time recently. Much of the money going into art investment today comes from buyers in the BRIC countries -- China and India being high on the list.

Asian investors are beginning to understand that as an asset, art offers long term security, documented growth, and reliability during uncertain economic conditions. Couple this with ground breaking rental potential, something that the Canadians have been doing since the '70s and the Australians since the '80s.

But of course not every piece of art is going to either grow in value or give you rip-roaring returns. What a shame because like all mothers, I prize my kids' pre-school scribbles – and delve into the odd fantasy about getting rich off of them. Yeah...that's not happening!

You have to be very circumspect about what you buy and what you do with it. According to Michael Donnan of Collins & Kent International in Hong Kong, you want to purchase a work of art that has good potential for medium to long term growth, and then rent it out to a third party to generate a significant rental income in the short term.

“Rental yields alone can average 7.5% per annum of the value of the work being rented out, and rental contract durations across the industry are typically 1 and 2 years,” says Michael.

Not bad huh? But how do you find a work of art that has potential?

Art dealers across the globe agree by far that the International Art Market continues to be dominated by western art and artists like Andy Warhol, Pablo Picasso and Gerhard Richter.

On one level this is a shame because as an Asian investor, you might be more intrigued with the idea of investing in a painting by MF Hussain or Zheng Chongbin or Huang Qi.

However, art advisors across the globe affirm that this strategy might work for emotional purchases but not for investment purposes.

“If you are buying art for the love of it that's a different story but if you are buying art as an investment then you need to think about who you are eventually going to sell to,” says Michael Donnan. “Sure there are markets for different kinds of art but those markets are usually limited to the genre of the artist. South Asians are indeed the predominant buyers of South Asian art.... as are the Chinese for Chinese heritage and contemporary art...or Australians for Aboriginal art.”

But purchasing European masters is another story because these do have universal appeal simply for their brand value. There will always be a market for a Chagalle or a Matisse, so the value will inevitably go up. The same goes for Picasso.

Jacquelyn Chong, who has bought several works by Picasso from Collins & Kent, doesn't even like him as an artist but when it comes to re-sale, she knew that putting her dollars into a Picasso lithograph was her best bet in terms of affordability and investment value.

Truth be told, there is a whole range of artists you can invest in – deceased and non producing like Picasso, Rembrandt and Matisse; blue chip and living artists like Damien Hirst and Andy Warhol; and mid-career artists or emerging artists like Banksy.

And if that's not enough then get this – just as there are indices to track assets classes like equity, debt and emerging markets, the Mindshare art index tracks the leading artists of all time. In terms of their particular art work, generally sculpture is the most expensive, then paintings, followed by watercolors followed by works on paper which can be quite reasonable.

“Works on paper are certainly more affordable than oil paintings. Works by emerging and mid career artists start as low as US$ 500 and those by the deceased and non producing artists like Picasso begin at US $5,000,” says Michael Donnan.

But what makes the whole thing really fall into place for the lay investor is the fact that once you've bought the art, you can place it directly into a rental program.

So that's what I decided to do last Christmas rather than blowing cash on useless presents. I bit the bullet and invested in one of Damien Hirst's paintings from his 'Souls' collection.

Above all, I wanted to stay detached so I could sell it to the right buyer at the right time in the future. To keep my options open, I intentionally went for a red and gold themed painting, auspicious colors here in Hong Kong and China. Then I immediately stared making rent by putting it into Collins & Kent's rental program for a year.

Right after Chinese New Year, my client service representative called me to say that my Damien Hirst was up HK$18,000.

Not a bad for starters huh? I still have to recoup my entire investment, but I am already a good one-third of the way there!

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