14 Aug The liquidity of art as an investment
Liquidity, the degree to which an asset can be traded, bought or sold quickly without a fluctuation in price is one of the biggest differences between investing in houses and investing in shares. But where does artwork rank in this scale?
It’s a great question and something people are always thinking about when investing in art: What would it be worth in a few years and can I sell it easily?
The answer is that it depends on a few factors:
What country you are in or buying from;
The original artist, their fame and connections;
The state of the economy globally or locally;
With the burgeoning middle class in many countries around the world including India and China, the demand for art has increased significantly in the past 15 years. In 2016 China alone represented 38% of the global art turnover, a significant number given that arts and collectables is a multi trillion-dollar industry.
When purchasing artworks the middle class often struggle with the lack of transparency when it comes to the history of ownership (provenance) and price. They are not experts and without time in the market, just like real estate it is difficult to judge without spending considerable time to build the knowledge base.
Wealthy investors typically invest around 6% of their net worth in art and collectables. These people have the experience and often use consultants to ensure their investments are ‘what they say they are’.
Therefore the liquidity is always different at higher and lower price points, so let’s look at the middle class as this is where the bulk of the numbers are, the few hundred dollars to a few thousand dollar pieces.
Trust is paramount for artwork liquidity
It is safe to say that it is easier to buy something directly from the original artist if you have met them, heard the story about the piece and admired others in their collection. It is much more difficult to pay thousands for an artwork that could possibly be a copy or a fake.
Liquidity might be increased on a global scale should technologies associated with blockchain eliminate the ‘human factor’ in artwork. In this new world equipped with blockchain authentication, ordering from half a world away could be as easy as talking to your local artist and in that case the number of trusting buyers could increase dramatically… what would that do to the global art trade? Another great question!