Art as a Financial Asset
Artwork has a subjective value to the owner and admirer, but it also has a financial value. Both these values are measurable by the prices it achieves in the marketplace.
Due to the opacity of the contemporary art market and the absence of reliable data on art investment in general, acquiring art is generally viewed as a privileged hobby for a few wealthy individuals who primarily purchase expensive artwork for sentimental reasons or as a “trophy” that distinguishes them in their disparate spheres of influence.
However, there are eminent financial benefits associated with acquiring original works of contemporary art as inventoried below.
1: Value increases over time
While it is a fact that only a fraction of artworks from contemporary artists, including those who might have achieved fame and success will increase in numeric value in their lifetime, it is also a fact that, in general, works of art behave as financial assets.
This is evidenced by the fact that the value of artwork tends to increase over time as its use does not depend on any degenerative practical function; making it both a store of value and a potential source of capital gain.
The value of early works by African contemporary artists like Nicholas Mukomberanwa (Zimbabwe, 1940-2002), Gerard Sekoto, (South Africa, 1913-1993), Irma Stern (South Africa, 1894-1966), Malangatana Ngwenya (Mozambique, 1936-2011) and Dumile Feni (South Africa, 1942-1991) continues to grow and are highly sought after by astute dealers, investors and revered art auction houses.
2: High-income elasticity of demand
Artworks are considered to be luxury goods, generally implying that people will only acquire a work of art as their income level grows. Works of art can also be classified as positional goods, meaning that they are goods intrinsically impossible to produce in bulk as their innate value is primarily a function of their desirability.
Holistically, positional goods are synonymous with exclusivity, extreme rarity and an innate uniqueness that makes them socially distinguishable. Furthermore, the ultimate ability to purchase a “positional good” is entirely dependent on an individual’s relative rather than absolute economic position.
To that end, contemporary artworks are positional goods in the sense that their supply and production cannot be increased as other goods. For example, a preparatory drawing by Nya for his work, “Blueprint of Grace” might be reproduced as limited prints, but the original drawing will always retain its value. And unlike other markets, increased demand in the art market cannot necessarily increase supply, a situation which results in the elevation of prices.
Heir of Inheritance X-Ray 98
Blueprint of Grace preparatory drawing
3: Authentic and unique
Each contemporary artwork is veritably authentic and does not have close substitutes, a fact that brings a considerable level of subjectivity into the valuation process. For example, every work by Nya’ is easily recognizable and created as a “one-off” even if it is copied or produced in a style that might resemble the work of a different contemporary artist whose work influenced his oeuvre.
For example, the influence of one of Africa’s leading contemporary artist, Viyé Diba (Senegal) is traceable in works from both his “Divine Inspiration” and “Voices of the Earth” series, especially in his use of found objects and an arid palette. And in his preparatory drawings, his meticulous precision and organic forms resemble the work of South Africa’s foremost draughtsman, Dumile Feni (1942-1991).
The arguable fact that the work of the Congolese artist Vitshois Bondo resembles that of the Kenyan-born American world acclaimed artist Wangechi Mutu does not make it inferior or less valuable, for the merit of each individual artwork is inherent and can only be judged with a similar work from a different artist after establishing its own uniqueness.
In essence, even though the subject matter, materials and technique employed by one artist in creating his work might be the same as another artist, a photograph by Tracey Emin (Britain), a painting by John Currin (USA) and a sculpture by the renowned South African sculptor Angus Taylor will always remain incomparable.
It is this important characteristic of “uniqueness (sui generis) or inimitability” which makes a contemporary artwork clearly distinct from financial assets and therefore, a desirable investment asset.
Restoration of Zion, X-Ray 79
Eternal letters to my Beloved preparatory drawing
4: Less illiquid assets
Since contemporary art sales tend to be sporadic, with only a few players, both buyers and sellers participating in both the primary and secondary art market, they are to a degree an illiquid asset, especially when compared to treasury bonds, traditional stocks or other commonly traded financial products. Generally, a liquid asset will tend to be more attractive as the investor can “withdraw their money at any time.”
Contemporary artworks are less liquid than most available money market products. This makes speculative investing in art with the intention of realizing quick gains a very high risk and absolutely less attractive strategy, especially for novice art buyers.
However, on the upside, history has clearly proved that a less illiquid asset like artwork, especially when the artist's career and work are astutely cultivated will likely result in sustainable and higher returns in the long term compared to liquid assets. For example, Seed Gallery is an exclusive gallery wholly focused to nurture, preserve and catalogue the work of Nya'. Entrusted in the long-term development and establishment of the artist’s divine assignment, the gallery creates a meticulous archive of his work and acts as a liaison to selected parties, be it museums, galleries, corporations, public and private collectors and collections.
In essence, this means that every work by the artist, including limited prints, editions and color x-rays for his ongoing works, namely “Keeper of Time,” “Restoration of Zion” and “Heir of Inheritance” are carefully inventoried with an accessible digital file annotating the current custodian of each work.
Keeper of Time, x-ray 6
5: Exclusively supply-driven
One of the most important economic features of the contemporary art market is that it is essentially supply-driven. This implies that regardless of the existing demand for works from passionate collectors and liquid investors on the primary market or secondary art market, there will always be a limited number of works available and therefore a very limited aggregate of pieces on the market at any given time.
Consequently, the fixed supply of paintings-in particular, the work of deceased artists, e.g. Nicholas Mukomberanwa, Zimbabwe, (1940 - 2002), Malangatana Valente Ngwenya, Mozambique, (1936–2011) and Sigmar Polke, Germany (1941–2010) will cause prices to escalate as art buyers outbid each other to purchase the limited high-quality pieces that will also now have an extended and sustainable market cycle.
Statistics reveal that a regular art cycle for a contemporary piece sold from a reputable gallery is between 10 and 20 years. This implies that from the time a contemporary artwork is sold on the primary art market, it will take, on average, at least 1 to 2 decades before the work is made available for repeat purchase on the secondary art market. However, as the art market continues to grow with new markets in growing economies e.g. Brazil, India, Dubai, South Africa, Nigeria and Kenya, the art cycles will shrink as new collectors seeking quality work come on board and reputable galleries and museums exposing and branding key artists are established.
Conclusively, due to the shortage of high-quality works available for purchase on the contemporary art market, increased supply will tend to drive prices upwards, contrary to other asset markets where increased supply tends to have a negative impact on prices.
6: The market relies on personal relationships and implicit trust
The contemporary art market has very few of the formal coordination mechanisms and institutional structures that exist in other markets. The base of buyers and sellers is an extremely fragmented global blend that is highly dependent on personal relationships and implicit trust between the key players in order to conduct business.
The fragmented nature of the market, coupled with its obscurity and often subjective elements in valuations sometimes lead to unbalanced information which results in high transaction costs and the need for art experts, e.g. art critics, art conservators, art advisors, reputable galleries and museums who act as both gatekeepers and market makers. It is with this in mind that Seed Gallery provides the services of an art advisor with keen knowledge and experience in contemporary art management, collecting and investment.
Aside from conscientiously guiding each prospective collector and or first-time buyer through Nya’s work, the advisor will also evolve an insightful conversation aimed at understanding the primary intentions for acquiring the art, the perceived space the work is intended for and the proposed budget. Seed Gallery’s art advisor will also, at the very least, assist in narrowing down interests and certain preferences, thereby helping the collector to make astute decisions pertaining to the selection and acquisition.
Conclusively, it is important to note that the upside to the close relationships and trust between sellers and buyers in the contemporary art market is the careful preservation of the artwork and price monitoring which lead to potential high returns each time the piece is offered on the secondary art market.