The art of investment

In these tumultuous economic times, amid warnings of continued uncertainty in the financial markets, the once safe havens for big investors don’t appear that safe anymore.

But in the past year, two specialist markets have emerged as particularly recession-resilient: top-end property and fine arts.

Those who had taken the long-term view and strategically invested in these markets are now starting to realise the benefits.

Last week an Irma Stern painting, Arab, was sold at auction for R17,2m and last year a similar work by the same artist, Two Arabs, set an SA record when it fetched R21,1m.

Both sales were by the auction house Strauss & Co, which had expected Arab to fetch between R7m and R9m.

Records were also set for works by Alfred Thoba (R913480) and Robert Hodgins, whose Et in Arcadia Ego and A Gentleman from Mexico sold for R1002600 and R779800 respectively.

SA art sales are mirroring international trends, which are setting some spectacular records in a time of economic crisis.

Last month, Edvard Munch’s masterpiece The Scream sold at Sotheby’s for US120m, a new record as the most expensive piece of art ever sold at auction.

This tops a Picasso sold for $106m, and also set a record — $286m — for Sotheby’s Impressionist & Modern Art auction, which featured other works by Picasso as well as a Dali and a Miro. The record had stood since 1990.

Data compiled by SA’s Stephan Welz & Co shows that works by SA artists have also offered quite dramatic returns in just over a decade.

For example, for every R1000 spent on a Stern in 1998, this had grown by an average of R13000 by January 2012. The same amount invested in a Pierneef had returns of about R4000, Adriaan Boshoff by R7350 and Maggie Laubser by R3970. Every R1000 spent on a William Kentridge in 2000 is now worth about R7630.

The trends in the property and arts markets are, however, not completely immune to the ills of the stock markets. For example, the same data from Stephan Welz shows that almost all art values took a dip during the 2008 economic downturn and according to Citadel, the private client wealthcare company, the prices of SA art sold at auction have on average declined by 7,7% in the first quarter of this year.

But they have recovered much faster than stock markets, which suggests that those investors sitting on large amounts of money are putting it into top-end art, rather than in the already shaky stock markets.

Citadel, which has created SA’s first art index, similar to the international Mei Moses art index, has noted the meteoric rise of SA art in the past decade.

But as Citadel’s senior investment strategist George Herman points out, one Irma Stern selling for R17m does not mean that another would sell for the same amount a few weeks later.

“This is not like buying an Anglo American share,” says Herman. “Art is difficult because it is not seen as an investment asset class.”

Though recession-proof, the art market nonetheless closely tracks the stock markets, but with a “time lag”. A recovery in the global equity markets will result in higher prices being fetched for art at auctions only in the following months.

“Very few of the big sales ever take place during a downturn, but you will see a lot of works at the lower end (R20000-R50000) come on the market because owners are looking for quick cash,” says Herman.

And as SA’s high net worth individuals are seeking out these gems on the art market, they are also acquiring the trophy houses to show them off in. These are not doing too badly either.

Though the property market worldwide tumbled in 2008/2009 on the back of the financial crisis, it seems the superrich still have plenty of appetite for homes in big-ticket suburbs.

Values in global hotspots such as London, Paris, New York, Miami, Hong Kong and Singapore have recovered much faster than their more modestly priced counterparts.

Figures from UK-based property group Knight Frank show that investors who acquired a swanky abode five years ago, before the crash, are still sitting relatively pretty. And again, SA is in on this international trend.

According to Lightstone, the country’s top 10 most expensive suburbs are currently priced 10%-26% higher than they were five years ago. That’s despite each of the 10 suburbs showing a price drop in 2009.

Pam Golding Property group CE Andrew Golding says upper-end suburbs have generally been more recession-proof than lower priced ones.

It seems that volatile equity markets have played a role, prompting wealthy investors to put money into tangible assets instead.

Golding says the group had a hefty 40% increase in units sold above the R6m mark last year versus an overall increase in sales of only 8%.

Granted, some luxury markets are still trading below previous peaks and those that bought at the height of the boom may have to sell at a loss if they were forced to offload now.

Prime house prices — the top 5% of the market — in London and Paris are up around 30% since early 2007.

Monaco and New York have reported growth of 21% and 24% respectively while Asian markets including Hong Kong, Singapore, Shanghai and Mumbai have rallied by at least 60% over the same time.

At home, SA’s most expensive streets, including Clifton’s Nettleton Road, Bantry Bay’s Ocean View Drive, Sandhurst’s Coronation Road and Hyde Park’s Fourth Road, continue to test the R100000/m² level.

Seeff Properties chairman Samuel Seeff says while Cape Town’s Atlantic Seaboard, arguably SA’s most expensive stretch of real estate, is no longer achieving the staggering growth rates of nearly 30%/year it did during the boom years from 2003 to 2008, sellers in Clifton, Bantry Bay, Fresnaye and Camps Bay achieved respectable growth of 13% on average over the past 12 months.

That’s in stark contrast to the 1,4% drop in house prices recorded by Absa for SA’s midpriced housing market (below R3,6m) for the year to end-March this year.

Says Seeff: “Well-heeled buyers continue to chase trophy properties. But there’s no doubt that investors have become more discerning in terms of location as they want to be assured of a decent capital return on resale.”

Jacques Durandt, a former banker who now advises private clients on the top- end property and art markets, says both have been surefire investments for SA, even though the art market has “oversold” for a while.

“But the Irma Stern sale shows that this is turning up again,” says Durandt.

He adds that in recent years most of his client’s portfolios have shown better returns on their art and property investments than on the stocks and shares.