the art market has been rising steadily for the past nine years and in the past four it has seen heady double-digit growth.
Thinking about investing in art? Katrina Strickland asks the experts what you should buy, how you should buy it and how long you should hold it?
HARRY Cator likes art. He regularly flicks through the Sotheby's, Christie's and Deutscher-Menzies catalogues in search of something that insists he part with his money and take it home forever. Paintings by Arthur Boyd and Charles Blackman have done the trick in the past.
But the investment adviser and chief executive of JM Financial Group is clear: he buys art because he enjoys living with it, not for investment purposes. It's not that art doesn't appreciate; the art market has been rising steadily for the past nine years and in the past four it has seen heady double-digit growth.
But finding an artist whose prices will appreciate, and buying their better works, takes something very subjective: a good eye. It also takes a solid knowledge of the art market and usually a decade of holding the work before you see a serious return. You've got to love a painting to live with it for that long.
But the biggest disincentive, Cator says, is the charges that an art purchase can attract.
If you're buying at auction you can expect to pay 15 per cent to 20 per cent of the purchase price to the auction house (called a buyer's premium) and when you sell it again they'll slug you for another 5 per cent to 10 per cent (a seller's premium).
If you're buying from the primary market -- the commercial art galleries that represent living artists -- you'll avoid these premiums, but you will still have to pay 10 per cent GST if it's new art. You'll probably also want to insure it, which usually works out at about 0.1per cent of the artwork's price.
All in all, it's a harder way to make money than investing in shares or a managed fund, the transaction costs of which are less than 2 per cent. Even property, which attracts stamp duty and conveyancing fees, doesn't get much above 6 per cent in transaction costs.
``People never take into account how much it costs just to buy and sell art,'' Cator says. ``How much does the art market have to appreciate to cover the buying cost? A lot. I buy art because I want to hang it on my walls. It's a quality of life investment, and shouldn't be seen as anything else.''
So rule No.1 if you're thinking of investing in art: love it or don't bother.
The good news for the art market is that during the past decade more people have bothered. Art has joined the architect-designed house, luxury car, fine wine and vintage wristwatch as a status symbol for the upwardly mobile young. Their parents may have had Pro Hart prints on the walls, but today's young bankers, lawyers and IT workers want the real thing and are prepared to pay for it.
Along with the entrance of young professionals and small-business owners, the market has had solid growth at the top end. Older, more established collectors are spending more on art as their wealth balloons and taking pride in tailoring their collections.
The market has plateaued this year, a reflection of a slight softening of the economy, but is not going backwards.
``People are more cautious than they were three years ago but the really wealthy are still getting richer and discretionary income is still high,'' Sydney-based art market analyst Michael Reid says. ``People are renovating houses and buying art to put in them.''
If you decide you want to buy art, rule No.2 is do your research. Go to galleries and make yourself known to the owners. Get on their mailing lists. Go to their openings, meet the artists, ask lots of questions. Do the same with the art auction houses.
Read the arts pages of the mainstream newspapers, and pick up monthly and bimonthly magazines such as Art & Australia and Art Monthly. Go to the public galleries in your state and see what artists they have in their permanent collections. Go to their temporary exhibitions, buy the catalogues. Read and read.
Immerse yourself in the research for six to 12 months; then you'll begin to get a good feel for what artists you like, what price bracket you are prepared to operate in and what galleries speak your language. Remember, ultimately it should be about your taste.
``You have to have a rapport with the artist you're buying, otherwise you will never buy well,'' says Bill Nuttall, director of Melbourne's Niagara Galleries. ``Whether it's abstract art, photography, sculpture or painting, go for something that gives you a buzz. The people who make the best purchases and the ones who end up with collections [that] are good investments are the people who really find out about the artists.''
Don't buy in a hurry; you wouldn't buy the first house you looked at or the first car you took for a test drive. The same caution should apply to buying art says Reid, author of How to Buy and Sell Art.
``Henry Ford said specialisation aids production,'' he says. ``If you're thinking of investing a serious amount of money, then up-skill and get good advice.''
If you're not sure who to go to for advice, the Australian Commercial Galleries Association is a good place to start. Most reputable galleries are members and the association's website (www.acga.com.au) will list their addresses and opening hours.
If you're new to the game, it's probably best to start with the commercial galleries, which represent living artists, rather than go to the art auction houses. Get to know the dealer rather than the weekend staff; it's their reputation that is on the line when they give advice.
``It's pertinent to remember that the great US collections -- the Frick, the Whitney, the Guggenheim -- were formed by dealers and clients, not auction houses,'' Reid says. ``Auction houses are a forum for sale, they are not taste makers.''
Chris Deutscher of auction house Deutscher-Menzies agrees. ``A quarter of what comes up in our sales is bought by dealers,'' Deutscher says. ``Begin in the primary market [commercial galleries selling new work] and end up in the secondary market [auction houses and galleries reselling work] once you understand the values of the market.''
Consultants who advise individuals and corporations on what art they should and should not buy are common overseas and have mushroomed here in recent years.
Expect to pay about 10 per cent of the purchase price for their advice. Whether you think this is money well spent depends on your outlook. If you're someone who likes to discover things for yourself, making the odd mistake along the way, then a consultant is probably not for you. If you like to minimise risk and want to get a good collection together with maximum investment value in a short space of time, it could be money well spent.
As in any field, there are good consultants and bad ones. Melbourne-based consultant Sophie Ullin says it's worth asking a few questions before engaging a consultant.
Of prime importance is their industry experience; the more years they've had working in commercial art galleries or art auction houses, the better. A fine arts or art history degree is also necessary. Their contacts are critical. The Australian art world is small; if a consultant is good, gallery owners will know them and vouch for them.
And remember, you are not only paying them for their knowledge and their eye, but also their access, invitations to exhibition previews at which you can snap up an artist's better pieces, the ability to find rare material, a broad base of contacts.
``You need to find out their background and determine whether you can work with them,'' Ullin says. ``It's very personality based, so
you've got to feel comfortable with someone.''
A good consultant will not tell you what to buy. Rather, they will tease out what art and artists you like, take you along to openings and guide you towards buying a good work by that artist rather than an ordinary one. Even top artists produce good works and dross. Not surprisingly, it's the former that holds value over the longer term.
Just as a dress shop doesn't take offers under the price on the tag, galleries do not generally discount on the asking price for an artwork. However, a polite inquiry never goes astray.
Nor is it usual for buyers to go direct to an artist and cut out the gallery. It sounds tempting, with galleries typically taking 30 per cent to 40 per cent of the purchase price.
But most artists do not want to bother with the grubby process of selling their work and most also understand that the gallery does a whole lot of marketing for them, not only staging exhibitions but promoting them to high net worth clients, going to art fairs and so on.
The gallerist's premium may sound like a lot, but it's sobering to remember that in the delicate art ecosystem few artists or gallery owners get rich from the process.
How long should you hold a painting? The longer the better, say most experts, with a minimum of 10 years the general rule of thumb. In recent years the trend towards people selling work within five years has grown, but you really need to know the market to play this short-term game.
Another recent trend is people who manage their own superannuation funds buying art with their super, which attracts a much lower rate of capital gains tax than if they had bought it personally.
Under Australian Taxation Office rules, however, this art must be stored or rented out, not hung on your walls for personal enjoyment. There is a small exception to this: if your art is worth 5 per cent or less of your total fund you can hang it at home, but superannuation expert Susan Ray says there are conditions attached.
The most important question, of course, is what should you buy: what's hot, what's going to give you a 300 per cent mark-up, who are the Arthur Boyds and Sidney Nolans of tomorrow?
``If it were that clear cut, I'd have a crystal ball and I'd be lying on a desert island, not working,'' Ullin says with a laugh.
In short, buy what you like and enjoy the process. Think of it as a new hobby or put your money elsewhere.
Rules of engagement
* Do your research for at least six months
* Get to know gallery owners and artists
* Check out the Australian Commercial Galleries website, www.acga.com.au
* Consider hiring an art consultant, but be aware of the fees involved
* Decide how much you are prepared to spend and get to know which artists are in this price range
* Be aware of the fees involved when buying at auction
* Consider buying via your super fund but be aware of the rules attached
* When you are ready to buy, buy what you like
* Don't buy the first artwork you see
* Be prepared to hold the piece for at least 10 years and, above all, enjoy the process
Australian art auction totals
1996: $27.10 million
1997: $33.51 million
1998: $49.70 million
1999: $68.69 million
2000: $78.09 million
2001: $70.39 million
2002: $79.20 million
2003: $91.80 million
2004: $86.27 million
2005 (as of late June): $46.02 million