Some of those attending this year’s Investec Cape Town Art Fair might be entrepreneurial new collectors looking to buy work from up-and-coming African artists with the intention of turning a profit and diversifying their investment portfolios.
However, the seemingly unpredictable nature of the art market might act as a deterrent.
The art market is more complex than other investment markets, such as stocks and government bonds, as art has an intrinsic value that cannot necessarily be quantified and plugged into economic models as easily.
This makes investing in art a greater risk, as there is no guarantee that the actual returns will be as high as the expected returns.
Art is classed as a luxury item and its prices are determined by trends, fashion and how much the wealthy are willing to spend on a given work. Higher-priced art can also have significant costs attached, such as a higher buyer’s premium and insurance.
Collectors can be grouped into two main categories: “pure collectors” and “pure speculators”.
Pure collectors buy art for its intrinsic, aesthetic value and prestige, which is known as the “utility dividend”.
Pure speculators are predominantly looking to turn a profit.
Pure collectors are less affected by risk, while speculators are more likely to leave the market in times of uncertainty. When assessing risk, looking to other markets can be helpful.
Studies comparing the stock and art markets overwhelmingly show that the two are closely correlated, as when the stock market increases the art market also tends to experience a boom. In this sense, art does not lead the market but follows it.
Despite this tendency to “follow”, there is also great value in analysing the art market itself. According to a statistical report from London-based market analysis company ArtTactic, there was an 8.4% decline in global auction sales of modern and contemporary African artists from 2022 ($87.2 million) to last year ($79.8 million). However, last year saw the second-highest sales total ever.
Some top African artists saw a dramatic increase in their auction prices last year, with the average price of Marlene Dumas’s work going up by an impressive 201% and Julie Mehretu’s by 129%.
Conversely, contemporary artists who have been staples of African art, such as Cinga Samson and Lisa Brice, saw a 48.9% and 39% decrease in price, respectively.
When looking to resell, there are viable options and platforms that can facilitate this process.
Leading African art auction house Strauss & Co reported a total revenue increase of 2% last year, despite global geopolitical and economic uncertainty.
As well as this, they were able to attract the interest of new buyers from 35 countries. This makes their market more stable, as even if the local economy dips, their international client base will continue to buy works.
So, what does this information mean for those looking to invest?
Ultimately, deciding whether to invest in art is dependent on the wants and needs of the investor.
Those looking to cash in quickly could find themselves coming up short, as while the African market has grown in recent years, it does not come without significant risk.
For those open to longer-term investments, and who derive pleasure from art ownership, it can be a profitable asset.
The art market is more complex than other investment markets, such as stocks and government bonds, as art has an intrinsic value that cannot necessarily be quantified and plugged into economic models as easily
