As part of a diverse investment portfolio, art can be an excellent alternative investment if approached correctly. “There are great opportunities in the South African art market for first-time buyers, but there are just as many pitfalls. It is crucial for novices to ensure they are well informed about the vagaries of the art market before rushing out to make a purchase,” says Stefan Hundt, curator of the Sanlam Art Collection and head of the art advisory service of Sanlam Private Investments (SPI).
Advantages of investing in art, says Hundt, are that it can offer a hedge again inflation, there are no capital gains taxes when an individual sells an artwork and it is a lifestyle investment that can be enjoyed on display in a home. “But on the downside, there are high transaction costs, up to 20%of the value of the piece at auction. It is vulnerable to damage so insurance is vital, and it doesn’t provide any income stream.
“Nevertheless, there are good returns to be made if you approach your investments wisely and follow the right principles,” he says.
Here are Hundt’s top 10 tips for the first-time art investor:
1. Thoroughly research the art market. Before you buy, make sure you have done your research on the artwork, the artist, and the art market and prices in general. “Take time to educate yourself. If you don’t have the knowledge, get the right advice, but don’t rush into a purchase without having done your homework.”
2. Know who you are buying from. If you are buying through a dealer, find out how long they have been in the business and whether they have fixed premises. “There are unscrupulous dealers out there who will try to take you for a ride,” says Hundt. With an auction house, be informed about the relevant procedures and expectations. Read the conditions of business usually printed in the catalogue accompanying the sale.
3. Establish the authenticity of the artwork. This can either happen through the dealer, if they are credible, or you can find an independent expert to do it for you. At an auction the onus is placed upon the buyer to establish the authenticity of a work offered on sale.
4. Don’t be in a hurry. Timing is crucial and the right work isn’t always available at the right time. “Good works are rare. Take time to look around and get a good picture of what is going on in the art market.”
5. Don’t buy something you don’t like. Make sure you will be able to live with your artwork. After all, you have bought it not only as an investment, but also for your own enjoyment.