Creative investing is an art

 

Meanwhile in Dubai, Indian businessman Ralph Mendonca says he started investing in art five years ago when his bank interest rates were not giving him satisfactory returns. “I have always been very fond of art, especially works by contemporary artists,” says the 43-year-old businessman who owns three IT companies. “And when interest rates dropped about five years ago, I began to seriously look at art and real estate as investment opportunities.”

Mendonca believes his collection of 20 works of art – most of them by contemporary Indian artists – will now fetch seven-digit dirham prices and says the time to invest in art is now. Those in the know say he is right.

Recently, well-known British art auction house Bonhams announced the opening of its first Middle East office in Dubai. Christie’s and Sotheby’s – both powerhouses in the world of international auctions – have been actively bidding for collectors’ and connoisseurs’ attention in the region for more than three years.

At its third Dubai auction last month, Chirstie’s officials said transactions eclipsed pre-sale expectations with sales made to the tune of Dh55 million. The same week, Sotheby’s held an exhibition, with some single items estimated to be worth more than Dh59m.

Michael Jeha, managing director of Christie’s in the Middle East, says the presence of these top auction houses is a “gift” for regional collectors and investors.

“It is helping to drive and provide a stimulus for the regional market,” he says.

Jeha’s organisation, which set up offices in Dubai three years ago, has established itself as the world’s leading auction house in terms of revenue. Its rival Sotheby’s has not established an office, but has held many exhibitions in the Emirates, while sales take place at their central locations in Geneva, New York, London and Hong Kong.

Bonhams’ European chief executive, Matthew Girling, says he is certain the UAE will soon become a major player in the international art market. “The art market is growing substantially here,” he says.

“We’ve been studying the market a long time before entering the region and there’s plenty of room for everyone to grow and develop.”

And investing in art need not only be the domain of the super rich. Dubai businessman Mendonca says with an increasing number of art galleries in town, anyone with a bit of surplus money can start investing.

“With the property boom, more and more people are owning their own homes and do not mind investing in art,” he says.

“The art scene here is going from strength to strength. More and more people are now buying art because they know they can sell it,” she says.

“The city is booming. And with more public awareness and more funding in terms of grants and programmes for artists, and the setting up of museums, there is a lot that can be done. There are a lot of players that are interested.

“The arrival of these major auction houses is an indicator that they see the possibility of the market growing.”

Brett Cardoz, the managing partner of Art Couture, agrees. “There is a lot of disposable income and people are buying properties and want them to look good,” he says. However, according to personal finance advisor Sandi Saksena, smaller investors in art should tread with care. “There is always a risk involved because you are buying an unknown entity and there is no guarantee of percentage returns,” she says. “If I buy a painting today for Dh10,000, there is no assurance that it will appreciate.”

The solution, she says, is to investigate the artist. “Not all of us are art critics, but we still buy paintings because it appeals to us. Use your own judgement,” says Saksena, who is a member of the Million Dollar Round Table, an international association of financial professionals.

Mendonca, a father-of-two, says his interest in art as an investment began after he got a tip from his bank’s financial advisors. “I was sitting with my portfolio managers and they told me they invest in art and property as an alternative to the stock exchange,” he says.

How art compares as an investment

The Mei/Moses All Art Index, shows that over the period of 1875-2000, art under performed equities but outperformed “some fixed-income securities”.

Between 1999 and 2003, the index rose at an annualised rate of over eight per cent. During the same period, Ten year Treasuries gained 6.7 per cent a year and the S&P 500 declined 0.7 per cent a year. While investing in art can offer a unique diversification tool there are some drawbacks like risks of frauds, high transaction fees and illiquid auction/dealer markets.