According to the Australian Art Sales Digest, local sales at auction were worth $27.1 million in 1995, a decade later in 2005 they topped $93.1 million, and this year, if first half sales of $47.2 million are any indication, they could get close to $100 million.
It has never been more popular, but that does not mean it is easy to make money from investing in art and expert advice is crucial, writes Katrina Strickland.
Asked to name Australian colonial painters, most people with an inkling about art could probably come up with Eugene von Guerard, John Glover and Conrad Martens. They might start to struggle after that. Similarly, the modernists who spring most easily to mind are Arthur Boyd, Sidney Nolan, Charles Blackman and John Brack.
The handful of artists who have come to typify each period of Australian art highlight something savvy art collectors should never forget: that most artists, even those who are hot for a certain period, eventually disappear without so much as an obituary in the local paper. Sure, their paintings might still be around, tangible mementos to their toil, but they will not be worth much to anyone beyond their immediate family.
And yet, over the past decade, art has risen dramatically in value, and a lot of people have done very well out of it.
According to the Australian Art Sales Digest, local sales at auction were worth $27.1 million in 1995, a decade later in 2005 they topped $93.1 million, and this year, if first half sales of $47.2 million are any indication, they could get close to $100 million.
The local boom replicates activity overseas, where international auction houses such as Sotheby's and Christie's have been recording strong results in a bull market that has lasted 11 years, two to four years more than the normal cycle.
The Mei Moses Art Index, which compares art returns in the US with those for stocks on the S&P 500, shows compound annual returns of 10.5 per cent for art in the 50 years to 2005, only marginally lower than the 10.9 per cent achieved by the stockmarket.
Over a shorter period of five years to 2005, art grew by 7.3 per cent a year, while shares fell by 2.4 per cent.
In Australia, former Queensland University of Technology economists Helen Higgs and Andrew Worthington calculated that returns on Australian fine art from 1973 to 2003 averaged 7 per cent a year, with a risk-adjusted return of 0.42 per cent. This was only slightly less than the 0.44 per cent return in the Australian stockmarket over the same period.
They warn however that returns on art are more volatile than for other investments, with a standard deviation of 16 per cent a year. For example, during the 30-year period analysed, returns were as low as negative 37 per cent in some years, and as high as 30 per cent in others.
The reasons for the current extended 11-year boom are multiple. Where once people were happy to hang prints on their walls, throughout the 1990s and now in the early 2000s art has become a status symbol on a par with the architect-designed house, Mercedes and designer watch.
Modern houses have more expansive white walls on which to hang paintings, and modern art and design have replaced antique sideboards, silver settings and crystal chandeliers as the must-have accessories for up-and-coming power couples.
Many of the newer collectors work in or around the financial services industry, where they have made ridiculous amounts of money, both globally and, to a lesser extent, locally, and have done so at a much younger age than their parents.
Buyers from Russia and China have also entered the market with a vengeance, having cottoned on to the status spin-offs of good art, and the auction houses are massaging a similar mindset in India and the Middle East.
Add the growth of do-it-yourself superannuation funds, which have begun diversifying into art, and investment syndicates that spread the risk on art across a number of collectors, and the picture becomes clear.
Either art is a bubble about to burst and this is the worst possible time to get into the market or it will continue to grow and is a sensible way to diversify your investments and make a new hobby pay for itself.
In its June edition, The Spectator magazine wrote that "never in living memory has there been so much interest in buying art as there is now". It quotes British art dealer Karsten Schubert who says "people are piling in now, late in the day", and warning that "when the smaller guy starts jumping in just to make money, then it's over".
Oliver Barker from Sotheby's has a different opinion. He says growing interest in art and buyers in untapped parts of the world "means the bull run could continue merrily on for another 10 years".
Worthington, now head of the school of accounting and finance at the University of Wollongong, says art is a much more stable, broadly spread investment today than it was in the 1980s when there was a lot of fad buying, particularly of French Impressionists. Remember Alan Bond and Van Gogh's Irises?
"There doesn't seem to be any evidence that the art market will experience a significant downturn in the near future, it is much more stable than it was a couple of decades ago," he says. "There doesn't seem to be any evidence that the art market will experience a significant downturn in the near future, it is much more stable than it was a couple of decades ago," he says.
"The main qualifier is that you need to be very knowledgeable about the qualities of the artworks themselves and of the artists. There is a high intellectual engagement required to make this sort of investment, that you do not need for investing in other financial markets."
The debate on how long the run will last supports the view of those who offer advice on investing in art; buy what you love not what you think will make you money because the latter is a highly speculative business in which profit is far from assured.
"You have to have an interest and passion first, and that will help you make the right decisions about what to buy," says long-time Melbourne dealer Bill Nuttall, of Niagara Galleries.
"It's almost by divine intervention that if you collect it because you love it, you more often than not end up collecting the right thing."
The transaction costs alone make art a silly investment if capital gain is all that you're after. Dealers on the primary market, who run commercial galleries which represent mostly living artists, typically charge 40 per cent commission. If you buy at auction (the secondary market) you can expect to pay a 20 per cent buyer's premium.
Auction houses cash in at both ends of the transaction, with sellers also slugged a commission, which can be up to 15 per cent for smaller value works, but will be cut to virtually zero for big, multimillion-dollar collections that a number of auction houses are competing to secure and sell.
Add insurance, usually 0.1 per cent of the value of the artwork, and 10 per cent GST, and art becomes a much more expensive gamble than putting your money into shares or a managed fund, where transaction costs are usually less than 2 per cent, or property, where with stamp duty and conveyancing fees it usually comes in at near 6 per cent.
Art market analyst and consultant Michael Reid, who has written a book on how to buy and sell art, says new collectors should spend at least three to six months looking at art before buying anything. This means visiting as many commercial galleries and art auctions as you can.
"The first thing you should do is take your hands off your wallet, take a deep breath, look around and see what you like," Reid says.
Once you've got a feel for what you like and what you don't like, start reading newspaper art pages, magazines such as Art + Australia and auction catalogues. Look for the artists who are winning prizes, who are being collected by public art galleries, and whose exhibitions are selling out and being critically acclaimed.
Start talking to people; ask artists and other collectors who they like, and why. Find art dealers who you like and establish a rapport with them. They will be keen to woo you, but you are also, in a sense, in the wooing game - their favourite collectors (who usually correlate with those who spend the most money) get invited to pre-opening drinks, get the first pick of works in a show (crucial for securing the best paintings in a series, which are the ones that will rise the most in price), and get tips about what artists in their stable are working on.
If you are not sure which galleries and artists are good, talk to people. You will soon get a sense of it. Look also for things like whether a gallery is a member of an industry body like the Australian Commercial Galleries Association.
Consultants have become very popular over the past five years, so if you are someone who likes asking an expert you should consider hiring one.
They will guide you towards a nexus between what you like and what is a good investment, introducing you to artists and gallery owners along the way. They will typically charge up to 10 per cent of the price of an artwork for their services.
Look for a consultant with blue-chip contacts, a fine arts or art history degree, and substantial experience working at either commercial or public galleries, or an auction house.
With booming areas such as Aboriginal art, provenance is a big issue, with numerous cases of fakes being reported over the years.
With photography you should look at how many prints there are in the edition; the smaller the number and certainty that no further editions will be printed (which is not always assured), the more valuable, potentially, the photograph.
Trade on the Australian art market is predominantly to do with local artists; overseas artists accounted for only $8.7 million of the $93.5 million spent at auction last year.
So if you want the best opportunity to resell your work, buy local.
How long should you hold art for? The standard rule has always been 10 years or more, but in recent times there has been growth in the trading of paintings within five years.
"People used to see buying a painting as a purchase for life, but with people moving houses more regularly, and the growth of interior design, people have begun trading art on a shorter time frame," says Mark Fraser, the managing director of Sotheby's Australia.
Still, most experts say that unless you really know the market, you should look to holding your art for at least five years, preferably more.
In the past five to 10 years many collectors have set up private superannuation funds in which to house their art purchases. With capital gains tax of 10 per cent if you sell it in your fund's accumulation phase and zero if you sell it in the pension phase, financial planner Susan Ray from Hillross Financial Services says it compares favourably with CGT for art owned by individuals, which can go up to 23 per cent. But, she warns, there are strings attached.
You are not allowed to hang the artwork at your home unless you have entered a commercial lease with the fund, and you can only do so if the art represents less than 5 per cent of the total value of the fund.
The art must fit also within the fund's declared investment strategy, and the primary purpose of its purchase must be to provide for the member's retirement, which in the words of market analyst Reid means that "flippant art-buying decisions" which are not backed by expert advice and a reasonable assumption of capital growth are out.
You cannot move art you already own into a super fund either.
In summary? If you love art, do your research and get into the market. But do it with excess cash and treat any capital gain as a bonus not an expectation.