Investing in art is very different from buying a painting that matches your lounge suite. While some investable art may be visually beautiful like a Monet hanging over a fireplace, more often art is there to provoke a reaction, to question and challenge and put a spot light on the darker side of society. Edvard Munch’s The Scream, which recently sold for $120 million, is not exactly a painting for  the bedroom wall, but it is possible to blend aesthetics with investment.

Art is not an investment in the true sense of the word. It does not generate dividends or interest and in fact costs you money to maintain. The value is often only truly recognised when it is sold and the capital value is the only upside and is therefore a store of value rather than an investment.

However art is certainly an asset class which can provide significant returns but usually over a long period of time – the average collector holds onto their art work for around 27 years. So while it may not be ideal for your basic retirement plan, it certainly can over 30 years develop into a very valuable asset.

The best way of approaching this asset class is to see art as an interest which has the potential of becoming a very valuable asset class. It is one of the few interests or hobbies where you can educate yourself while at the same time create an asset base of great value.

While there is nothing wrong with buying a piece of art because you like it, it is not the same as investing in it. One needs to learn about the world of arts just as one would investigate and read up about a share or a unit trust before investing. Most of us will buy an art work in our life time, but we seldom take the time to do our homework.

A good starting point is to visit galleries and art auctions. Stephen Welz, founder of Stephen Welz&Co auction house and now director of Strauss&Co says when starting an art collection you should stick to the recognised artists, in much the same way as a share portfolio should be made up of blue chip companies.

A good auction house or gallery will be able to advise you on who the recognised artists are and what they are worth. But you should also be doing your own homework by attending auctions and seeing what prices certain artists are commanding. It is only in an auction that the true market value of an artist or specific art work can be determined because art is only physically worth what someone else is prepared to pay for it.

There is however also room for new artist in a collection. As one may invest a small portion of your portfolio in newly listed companies, a well-chosen new comer can increase significantly in value. However this is not for novices and it is, as with investing in a small company, even more important to do ones homework. New artists also create opportunity for the smaller budget collector.

If you are buying into the blue chip league you need a starting investment of R50 000, for half that amount you could pick up a new artist, however the risks are far higher. The risk with new artists is that sometimes their prices can be overinflated as they are still to be tested in the auction environment and they are harder to re-sell.

But when it does, the pay off can be immense. For example a Kentridge etching in his early days went for R8000, today that is worth around R500 000. But not every new artist is a Kentridge and is far more are likely to remain in obscurity than to succeed.

If you have a smaller budget and want to buy into more established artists, you can start with collecting limited edition signed lithographs (prints) of well-known artists.

You don’t need to be rich to be an art collector, although it does help. There are many famous collections by people of ordinary means. For example a bookkeeper built up a collection worth many tens of millions of rands, yet he never owned a car because he could not afford it – his investment was his passion. Some people would rather buy an art work than take a trip overseas

Tips on buying:

• Go to exhibitions at galleries but keep in mind that the gallery usually has a vested interest in the artist, so gather information and learn about the artist’s career but also do your own research
• Attend auctions at reputable auction houses as well as their previews. This will give you an idea of how an artist is valued in the market. Good auctioneers like Stephen Welz&Co and Strauss&Co will also give you advice on starting an art collection
• Understand additional costs over and above the artwork such as commissions and insurance. Auction houses commissions vary between 10 – 20%, these are usually higher at art galleries. There is also the cost of insurance which gets to be quite a specialized field so you want to work with an insurer who has an expert knowledge in this area such as MUA Insurance.
• If you need advice on your art collection, Sanlam Private Investments (SPI) offers an Art Advisory Service headed by art guru Stefan Hundt who also writes a quarterly review of the art market.
• One of the advantages of becoming a collector is that art does not necessarily attract capital gains tax when you sell it or inherit it – as long as you enjoyed it for personal use.  According to Daniel Kriel of Sanlam Investment Management, based on paragraph 53 of the 8th schedule in the Income Tax Act, you will have to note if the art is a personal use asset or the art is used for carrying on of a trade. If the asset (art) is a personal use asset, then you will not pay any capital gains tax, if the asset is not for personal use then you will pay CGT.

 This article by Maya Fisher-French was first published in City Press