Artwork is growing into the ideal asset class for investors in the Middle East, as the region's art scene continues to flourish
Competition, saturation and a global economic slowdown have forced residents in the Middle East to stray away from the science of doing business and explore the art of making money. As Andy Warhol once said, “Being good in business is the most fascinating kind of art. Making money is art and working is art and good business is the best art.”
Strangely, Warhol was an artist first and these are not comments usually associated with someone like him. Unsurprisingly, his views did not go down well in the art community. But, is it impossible to dissociate money and art in today’s world?
If you’ve been to any prominent art show or art gallery, perhaps you know exactly what I am talking about; the elitist atmosphere and the smell of heavy bills in Louis Vuitton purses held against Gucci gowns that aren’t half as fake as the ones you’d see at a local fair or exhibition like the Global Village in Dubai.
There aren’t documented reasons for the correlation between the taste for the arts and possession of riches, but there are some obvious ones. To begin with (and to put it simply), purchasing art is expensive. Prices at Christie’s, an international auction house with a strong presence in the UAE and the Middle East, can go up to $100m. Leonardo da Vinci’s Salvator Mundi recently sold for a record $450m at auction. A 1986 sculpture by Jeff Koons was sold for $91.1m, setting a new record for the most expensive work sold by a living artist.
Secondly, for many, art collection has been a legacy trade that has been passed on to them by their parents and grandparents.
And, finally, it is also a status symbol. According to the Knight Frank Luxury Investment Index, wealthy people have spent more money last year on art than investment grade wine, watches, coins, and even luxury cars.
So is art just for the rich? The managing director of Christie’s Dubai thinks otherwise.
“Art is more accessible than ever, from affordable works on paper through to masterpieces by modern Arab artists – prices at Christie’s can vary from $1,000 to more than $100m,” says Caroline Louca-Kirkland.
She adds: “A key part of Christie’s work in the region is to demystify the auction process, which we do through transparency and accessibility, regularly hosting events to meet with new and existing collectors and art enthusiasts. Members of the public always attend our exhibitions to learn more about art from the region, and then they can experience the sale first-hand, bid in person or online, and join the events and activations that Christie’s hosts throughout the year.”
But can you even put a price on art and creativity? While it is easy to put a price on an active artist who has already sold his work by using the scientific business formula based on the rarity, provenance, and previous sales for the artist’s work, putting a price on a new entrant’s work involves a lot of negotiation, back and forth with galleries, and could, in fact, require a lot of expert guess work.
Despite this, galleries, auction houses and collectors are participating in the gamble, and, why not? According to Deloitte’s Art & Finance Report 2017, the market is predicted to grow in worth (held in collections) by up to $53.6bn by 2026 from $86.4bn in 2016. Last year, sales for just Christie’s artwork totalled $7bn.
The appetite for art in the region has always been strong and this thirst was quenched by the works on display in Cairo, Damascus and Tehran, which was, back in the 20th century, deemed as the cultural capitals of the region. However, geopolitical tensions and economic instability have shifted the spotlight to the young, but more contemporary and diverse, hub of Middle East – the UAE.
As Sylvain Gaillard, CEO of Dubai Opera Gallery puts it: “Dubai is a small representation of the globe”, with the diversity not just in nationality, but also in tastes, culture and, most importantly, wealth classes.
“Through the last 15 years, we have witnessed a shift in taste within the collector’s community, who previously purchased art from their homelands, whether in Lebanon, Egypt, or elsewhere. Today, collectors are looking for the very best examples of Middle Eastern art, while their tastes are also becoming more international,” Louca-Kirkland says.
To underscore the growing appetite for art collecting across this region, buyers from the Middle East who participate in Christie’s regional and global sales increased by 37 percent in 2018.
According to Sotheby’s, another auction house, the number of Middle Eastern clients participating in its global sales has risen by 76 percent over the past five years. The surge in interest from the UAE is even stronger – participation there is up 157 percent, CNN Money has reported.
Artistic initiatives in the region are on the increase – there is tremendous opportunity in Saudi Arabia, where there is focus on art and cultural development as part of the Vision 2030 road map. The Louvre Abu Dhabi, apart from its permanent collections, hosts four temporary exhibitions every year giving an opportunity to talents within the country. Sharjah Biennial, Warehouse 421, Alserkal Avenue, and even Dubai Design District are all manifestations of the country’s thriving art scene.
“Unquestionably, there is an increasing appetite across the Middle East for both contemporary art and Islamic art from the region. The opening of the Louvre Abu Dhabi, the Sharjah Biennial, and the growth of non-commercial art centres in the region have all increased awareness of and demand for artwork from this region. There is a widely-held understanding that a robust cultural landscape contributes to the present economy and ongoing legacy of the region,” Louca-Kirkland says.
Another shift in taste has been with regards to the purpose of purchases. Up until a few years ago, art was purchased with the sole aim of consumption - either by art lovers who genuinely understood and valued the priceless piece of work they “acquired” or by the wealthy who wanted to buy for the sake of their status symbols - but, in both cases, it would be a binary two-step transaction of selling and buying. However, in the last few years, individuals, as well as organisations, have come to realise the investment potential of legendary art pieces and are exploiting it efficiently.
The economic impact of art in western nations has been well documented. Earlier this year, Forbes had reported that the growth in arts and cultural economic activity made up 4.3 percent of US gross domestic product (GDP) for 2016. That equates to more than $804bn in economic activity for that year alone.
From a social standpoint, many organisations globally, and in the region, have been investing heavily in the arts as part of their cultural philanthropic efforts. This does benefit companies monetarily too, as consumers and customers are increasingly leaning towards brands and firms that are embracing efforts in social responsibility and community involvement.
Narrowing it down further to an individual level, art is a great personal investment. And the most immediate way to discern its value is by borrowing against it. Deloitte estimates that the outstanding value of loans against art in America reached $17bn to $20bn in 2017, up 13 percent from the previous year.
“Five years ago people would just come to the gallery and buy pieces because they knew the artist and they liked it. More and more, we see people coming to the gallery and they’re looking to purchase a piece purely from an investment perspective. When I recommend something for someone that is passionate about art, the discussion would be very different compared to the discussion I would have with someone that’s looking at art as an alternative asset,” says Gaillard of Dubai Opera Gallery, adding that when someone goes to him to buy purely from an investment perspective, he has to, sadly, strip the emotional quotient and manage the buyer’s expectation accordingly.
Now that we are talking big bucks, investment and huge sales, you might be wondering about the effect the ongoing economic cycle has had on it. The answer is zilch. Art is one of those few rare industries that isn’t affected by the economy or economic cycles, exactly how the ultra high net worth (UHNW) individuals aren’t really affected by economic cycles. It is always the middle class and the surrounding classes (i.e. upper and lower middle classes) that are first affected by any small or big economic ripples.
“The art market is like another market. But the only thing the art market is never correlated to the economics. The only small ties we have been able to link the art market with is the real estate market. Usually when the real estate market goes up, the art market goes up. Just like any other market, now and then some styles and artists tend to go out of favour for a couple of years and the market tends to pick them up again. It is very unpredictable.”
He adds: “As far as we are concerned we have seen a shift in the buying behaviour of the collectors. We have seen a shift to the opposite end of the spectrum. People have started buying more expensive and more decorative art. What seems to be out of favour are the mid-priced artworks. People would rather allocate money to a two-way tested name or go for young and up and coming artists because the price point is going to be low. That’s what we have seen in the last two to two and a half years.”
But what is considered inexpensive in the art world is still a matter of heated debate. By definition, art is the expression or application of human creative skill and imagination. Is it fair to put a price on creativity? If it is, then is it really fair to make the prices so unaffordable that only the rich and wealthy are allowed the privilege of enjoying it, especially when the artist behind the work seldom benefits from the auction sales?