Tighter rules over personal use assets in self-managed super funds, and the controversial "Resale Royalty Scheme", have seen the value of art and collectibles plummet since 2011, according to ATO figures. Prices cooled as SMSFs sold off works and bought fewer new ones to avoid storage fees, with the royalty scheme affecting both primary and secondary markets.
Around 2% of SMSFs owned artwork or collectibles in 2012, with an average investment of around $70,000 according to the ATO. According to ATO figures, artwork and other collectibles represented 0.17% of SMSF holdings in June 2011. That had fallen to 0.11% by November 2013.
But is it time to look again at investing in art to diversify your portfolio? Has the market troughed and does it now represent a buying opportunity?
Australian Art price movements
Now that the dust is settling, there are some green shoots emerging in the art market. 2013 has seen a "rise in market confidence" according to the Australian Art Market Report. Its findings by category are:
Aboriginal art: the first half of 2013 saw a strongly positive trend, suggesting that marketing confidence is returning. Auction sales from major houses reached US$8.05 million, up from US$2.69 million in 1H2012.
Modern Australian art: he first half of 2013 totalled $26,835,813 in sales, based on auction sales at major houses. This is 15.1% lower than for 1H2012 and 4% below results for the 1H2011.
Australian Contemporary art: auction sales reached a total of $2,259,200 for the first half of 2013, the highest figure since 2010 and 14.5% increase on 1H2012.
Nicholas Lambourn, the director of Australian Art at Christie’s London, predicts a "reasonably healthy" 2014 for the Australian art market. He believes a lack of fresh work has led to the market looking flatter than it really is.
Paul Sumner, managing director Mossgreen expects an increasing level of confidence in buyer interest across the board in 2014. He says it started in the second half of 2013 and expects it to continue as "a modestly upward trend".
Australian vs international art
The question with any type of collectible is what to buy? Non-Australian artworks are exempt from Australia’s Resale Royalty Scheme and resell more easily to an international audience, though they may be subject to foreign royalty schemes.
Writing in the Financial Review, art commentator Michael Reid predicts that a major European or North American art gallery will follow foreign retail brands and open in Australia in the next three years, attracted by Australia’s strong economy and lower barriers to entry. As a result of this he forecasts that Australian artists may lose out to overseas names such as Damian Hirst, whose works are easier to resell internationally.
Signs of optimism
The art world is also hopeful that the new superannuation rules will be relaxed. When they were introduced, it was on the promise they wouldn’t affect art values. The Art Market Report mentions "rumours" that the rules concerning art in SMSFs could be relaxed to allow investors to hang and display investment-calibre works in their home or office.
Another ray of light could be the review of the Resale Royalty Scheme. Introduced in 2010, it gives artists 5% of the sale price each time their work is resold. But art dealers says it has restricted sales. The Society of Auctioneers and Appraisers claims it has "single handedly destroyed the Australian Art market quicker than any recession could have done."
The growing trend in the corporate sector of art rental rather than art ownership is also creating an opportunity to realise an income stream from art investments.
New finance options for art investment, such as acquisition finance, sale advance loans and personal loans against art and collectible assets are also providing liquidity and investment opportunities.
Nick Raphaely is the co-founder of Assetline, a personal asset lender which enables investors to borrow against valuable alternative assets, in a fast and secure way. Nick has extensive experience with alternative investments and previously worked for Merrill Lynch in the UK and Australia.
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