Diversification of assets is the credo of all wealth managers and, among the recommended investment vehicles, the purchase of works of art is often cited. It is true that some sales are the stuff of dreams. In 1997, a wealthy art lover bought for $31.9 million The Women of Algiers (Version O)by Picasso. It reappeared at Christie’s in 2015 and reached the astronomical amount of… 179.3 million dollars, a gain of 147 million dollars in the space of eighteen years! It couldn’t be a better return on investment.
Of course, these results are those of world-famous artists who are already very expensive to buy. Without aiming for such valuations, an individual with more modest means can nevertheless make great acquisitions and hope to resell them at a good price, especially since the tax on the resale of art objects is favorable. You pay a tax of 6.5% on the sale price, with the possibility of opting for the capital gains regime on movable property if the latter is more favorable to you. The tax rate on the gain is then 36.2%, but a reduction of 5% per year of ownership beyond the second results in a complete exemption beyond twenty-two years.
To start out in art, improvisation is to be avoided. Allow several years to become an informed amateur. As in the stock market, where we invest better in the sectors we like, we must get started by determining our interests. Obviously, we often like several artistic movements, but, unless you have the financial means of a Rothschild, you will not be able to own everything. You must therefore limit yourself to two or three sectors.
Unless you rely on art advisors whose competence is often questionable or use the specialized services offered by certain high-end banks to their wealthy clients, it is imperative to acquire as much knowledge as possible. To do this, it is essential to frequent museums, auction rooms, galleries, major fairs and flea markets, without forgetting to read magazines and art books. To go further, you can register as an auditor at the Ecole du Louvre in Paris or at the faculty of art history.
Think about old books
Before buying, you should also determine your annual spending budget and your investor profile. According to wealth managers, you should not spend more than 10% of your income on it. With a small budget, you will opt for areas that are not very speculative, outside of current trends, but whose growth potential is real in the long term. This is the case, for example, with old books or Art Nouveau glassware. If, on the other hand, you have more time and you like to play, contemporary art is for you.
For your first transactions, don’t try to get the most beautiful objects or paintings. Stick to classic pieces at an affordable price, and contact exclusively antique dealers and second-hand dealers who will help you with your purchases, especially if they detect in you a keen amateur. Don’t forget to ask them for a certificate of authenticity which commits them to liability in the event of a problem (fakes, overly extensive restorations, etc.). Once you are sure of your eye, you can visit auction rooms where dealers are very present. You will need to master the codes of this environment and participate in auctions which are done in price increments, for example 200 euros in 200 euros for an object whose sale starts at 1,000 euros.
Be careful not to get carried away by enthusiasm, which would lead you to overpay for the coveted item. Also be aware that the estimates of auction houses and experts (a price range) are indicative. The final price may therefore be higher. You will have to add the sales fees collected by the auctioneer, of the order of 20% to 30%.
The main disadvantage of auction houses is that you have to take the object as is. Be careful! As long as you have been able to examine it beforehand, no complaints are possible after the acquisition unless it is a fake presented as authentic. At the same time, frequent renowned galleries and major international art fairs (Art Basel for contemporary art, Brafa in Brussels, Tefaf in Maastricht or Fine Arts La Biennale Paris for antiques, etc.). The prices are high, but negotiable.
Keep your purchases for at least five to ten years
As your collection grows, follow the market regularly and consult The Drouot Gazette (by annual subscription of 115 euros on the Internet and in paper version), which displays the results of all sales. This is a very useful indicator that will allow you to follow the upward or downward curve of your objects. You will then be able to decide to part with them at the best time. If you want to have a very precise vision of an artist’s rating, subscribe to Artprice. This site stores more than 30 million auction results worldwide for nearly 850,000 artists and publishes numerous analyses and studies on different movements and sectors of the market. All professionals use it and a simple individual can do the same.
Don’t be afraid to make mistakes. All collectors will admit that they have sometimes made very bad purchases. These experiences, although unpleasant, have allowed them to become, over time, fine connoisseurs and to avoid new pitfalls.
Finally, regardless of theft insurance, think about the conservation of your objects, especially when they require restoration: paintings to be relined, chests of drawers with missing marquetry, damp or sun-damaged drawings, chipped porcelain, bronzes with a faded patina, etc. The budget to be expected is not negligible, but these expenses are essential if you hope to resell your collection at a profit.
In any case, do not think about selling your acquisitions quickly. Apart from contemporary art where it is frequent, speculation is frowned upon in other areas of art. It is therefore recommended to keep your objects for at least five to ten years before considering parting with them.
How to insure your collection
It is advisable, but not mandatory, to insure your collection. There are three possible solutions. The least expensive is to take out a multi-risk home insurance policy with a declared value. You estimate the overall value of your works of art yourself, without the intervention of an expert or the insurance company. In the event of theft, you will only be compensated if you provide proof of the possession, condition and value of the stolen objects.
For better protection, you should opt for a contract with an agreed value. This is set in consultation with the insurer with the help of experts or an auctioneer. An inventory is drawn up and your premium is higher than the declared value. Each time you renew your contract, you can adjust your guarantees according to market trends and your collection. In the event of theft, the company reimburses based on the value stated on the contract and you do not bear the burden of proof. Contracts of this type, adapted to artistic assets of at least 150,000 euros, are offered by many companies.
However, the ultimate for large collections remains the contract reserved for works of art only. Tailor-made with high premiums offered by companies such as Generali, AXA Art, Allianz or Hiscox.
An article from the special report “The best investments for the start of the school year”, published in L’Express on September 19.
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