Investors cash in on art

Good paintings make a big difference to a living room, but art is much more than a decoration - it is also an investment.

But, while Hong Kong people are experienced in investing in stocks, foreign exchanges and property, the world of art is different. That is why some companies are providing an end-to-end art investment service, with direct connections to the Chinese art world and international investment specialists.

'We believe the greatest potential is with mid-career artists, who have already proved their artistic talent but in many cases can be undervalued in relation to supply and demand,' says Jon Reade, director of Art Futures Group in Hong Kong.

The art investment company's clients cover a broad spectrum, from experienced investors to people looking for a gift that not only looks fantastic but also holds an increasing intrinsic value.

'Emerging artists are very much a lottery in terms of investment potential, while blue-chip artists, although likely to show steady growth, will generally cost many millions of dollars,' Reade says.

'Just recently, we sold a piece by mid-career artist Shen Jingdong that was originally part of a series of three. We were contacted by a Hong Kong resident who had previously bought the other two pieces and, since he was happy to pay a handsome premium to secure the missing piece in his jigsaw, our client almost doubled his money in less than six months.'

For sure, the sale of art in Hong Kong has been closely connected to the mainland's economic boom. Reade points out that in the 1980s it was illegal to put contemporary art on your wall on the mainland.

'Now there are 60,000 new expensive apartments being sold in Beijing and Shanghai each month that all need to be furnished, and this is helping to create a huge demand,' he says.

'The global Chinese art market has seen a phenomenal rise in the past six years. Total sales increased nearly nine times during this period, with 2011 representing by far the largest rise to US$8.6 billion. So far, every indicator is pointing to another record year for galleries and auction houses. Once again, this growth is being underpinned by the 500 million members of the emerging middle class who now have the ability to purchase investments of passion for the first time.'

When hunting for pieces of investment value, it's vital to do your research. According to Reade, most galleries will give very little information relating to the true value of a piece and the art market is generally opaque. He recommends asking to see auction records for the artist, previous sales and even for prices from other galleries worldwide that will give a fair comparison.

Apart from keeping the piece at home, the investor may make more money by leasing it out. One of Art Futures Group's services is to lease its clients' artwork out to local businesses while it continues to appreciate in value. This provides an income or dividend annually while the piece of art is going up in value. It is possible to get up to 6 per cent per annum in rental income.