By Tamara Walid
Has the era of regional auction houses and art galleries making fortunes from sales come to an end?
Has the era of regional auction houses and art galleries making fortunes from sales come to an end? Tamara Walid investigates.
Sergei Smalinov is not making his usual trip this month to Dubai's art galleries; nor was he among the buyers at any of the recent art auctions in the emirate. Nor is he alone in changing his collecting habits, which he has been maintaining for years.
Sadly, it's something I have to give up," the Kuwait-based insurance executive says, "even though it's not merely an investment to me, it's my passion."
Smalinov is only one of many regional businessmen who have been deprived of their bonuses this year, with companies tightening their belts amid the global economic crisis. "I used to get a big enough pay-out to buy a number of decent artworks every year. I can't do that anymore. My friends, who are also art collectors, have stopped spending on art altogether," he says.
Events of the last few months have shown that the Middle Eastern art market is not immune to the downturn. Falling prices of oil and equities have resulted in lower demand at auctions in Dubai, while others in the industry have been similarly affected.
Charlie Pocock, a Dubai-based art dealer and managing director of the Meem art gallery in the emirate, believes the bubble has burst. "This bubble was linked to the property bubble here in the GCC, and the rise in petrodollar wealth since 2005. The art market has been growing for decades and after property, has proven to be one of the safest and most reliable markets," he says.
At the end of November 2008, auction house Bonhams' held its second art auction in Dubai and raked in just US$2.8million, far below its pre-sale estimate of US$12million. Only 50% of works were sold, while four lots were withdrawn, including British-Indian artist Anish Kapoor's Mountain sculpture, which was forecast to fetch around US$2.6million. The highest-selling lot was for prominent Iranian artist Charles Hossein Zenderoudi, which brought in US$276,000.
A month earlier, auction house Christie's had held a two-day sale of art and jewellery in the emirate, and fetched US$16.9million against a pre-sale estimate of US$32million. Some 70% of the works were snapped up by buyers, which indicated appetite was still relatively strong in the market.
But although artworks sold for approximately seven times their estimates at the beginning of 2008, this has changed drastically. "It's clear to everyone that the market has adjusted - not just the Middle Eastern market, but globally," says Michael Jeha, managing director of the Middle East for Christie's. "It's clear that we are in a financial crisis throughout the world, which has impacted everyone across all fields - be it the financial, property or art market. Everyone has been affected."
Jeha believes this is the right time for art sellers to "adjust accordingly" and look at ways to do things "differently".
He is convinced that "good" art might fluctuate in price, but will always retain an inherent value that is restored over time. "If you look at our sale in particular, it was still 70% sold, which is very respectable in this market. But it's clear that the market is now more selective and prices have softened," says Jeha.
Pricing will have to be adjusted and made more attractive, explains Jeha. By doing that, he hopes to encourage people to participate and become more active in the market. "What we are trying to do is go back to the pricing of a couple years ago. We are trying to bring in pieces for the sales next year, and really adjusting our price levels and trying to be more selective in terms of putting together a sale that would have a strong chance of selling well."
He continues: "To restore confidence in this market, we want to try and have high-selling percentages in 2009. If we can get up to 80% selling percentages in this market, it will be a fantastic achievement, and will go a long way to restore confidence and stability."
Despite an overly negative sentiment in the market, Jeha believes there is still demand and liquidity; keeping the market active, but with a more selective outlook from buyers. "If you look at Christie's sales globally, you're still seeing sales with 60-70% of the lots sold. It's still very active but it's adjusting to the change in the markets," he says.
Pocock believes the main ingredient for the bubble, and which eventually deprived the market of confidence, is the absence of a regulator.
Works of art have been selling at very high prices, he says, explaining that this was encouraged by "manipulators or self-proclaimed market-makers".
We have some of the galleries and art dealers encouraging and forcing the prices up artificially," he says, adding that the bubble was exacerbated by a "total lack of market knowledge by the market itself", believes Pocock.Another contributing factor, Pocock says, was the sudden and immense surplus of cash in the hands of individuals who had profited from the rise in property and oil prices. Many strived to own works of art and bid in public, seeking social acceptance and stature, he says.
But Pocock is not about to leave "financial speculators" free from blame. With their short-term outlook, he says, they sought to make a quick profit. "When you look at those who benefited the most from the art bubble, you'll find those most worthy of blame for its bursting.
In their unstoppable quest for profit they have ignored that to build something, you must first build the foundations and look long-term," says Pocock.
Middle Eastern artworks that sold for US$100,000 in April 2008, can now hardly find buyers at US$18,000, he says. "Let's face reality," says Pocock. "The bubble has burst. It has imploded. Those who will suffer in the end, and as originally forecast, are the artists, because clients will be disappointed that what they paid for is now worth a lot less, and they will not buy anymore."
Signs of this are already evident, Pocock says, as artists are now unable to sell their works outside auctions, but are still demanding auction prices. "We have buyers who bought irrationally, jumping on the bandwagon at the last minute, thinking it was a good investment. Now they realise it wasn't and are suffering," says Pocock.
Jeha, although admitting times are tough, is convinced the market will adjust and pick up in time, emerging much stronger. "Pricing of Middle Eastern, Western, Chinese, Indian, Iranian, and all art will come down to more attractive levels. People will have to be realistic and accepting of that, and it's no different to any other industry. Everyone will rebuild and adjust, and in time things will pick up like they always do," says Jeha.
He believes the plus side of the downturn may be a shift towards more long-term sustainability in the Middle Eastern art market. "I think the danger is that things were increasing a little bit too fast, at a rapid pace," he says. "This time around, we'll see things increasing and adjusting at a more sustainable level."
Pocock argues that there couldn't be a better time to invest in art education, as the market heads towards a more sustainable model. "At Meem, we have one of the largest recognised libraries in the GCC on Modern Middle Eastern Art and Ancient Islamic Art. We publish books on art. Very few people are doing that, and there are very few exhibitions apart from local galleries," he says.
Pocock claims that this is the best time to buy artwork, for those who can spare the cash. "If you have the money and you have someone to advise you, can get some very good deals. It's better to have money in art now than in stocks and shares," he says.
Smalinov is among those who realise now that they previously failed to get good value for money. Pocock believes executives are really "suffering", because they have not been getting the right deal in an extremely commercial art market: "People are not investing in the artists.
You have to believe in long-term investment and education. Our clients, who are CEOs of major companies in Bahrain, Kuwait, Saudi Arabia, Oman, Abu Dhabi and Dubai, are happy with what they're getting from us and appreciate our honesty."
Pocock's clients include high-ranking individuals such as heads of state, members of ruling families, top company executives, and bank managers. He says that a large portion of Gulf families' wealth, which has been invested in various sectors and businesses globally, is still shielded from the global financial crisis.
However, there are businesses that have poured substantial amounts of cash into US hedge funds that have completely bottomed out, points out Pocock. "A lot of the business is drying up - even for some of the locals. Across the board, people who have money will always have money, but everyone's tightened their belts.
The pricing was mad and I've been saying this for the last two years. There was a lot of rubbish. Now you can buy pieces for what they're really worth."
However, market sentiment will slowly shift towards more positive levels, asserts Jeha: "When that happens, people on the sidelines with a lot of liquidity, will start to come in and find that they have a lot of good deals. They will be able to buy things at attractive levels."