Foreign buyers help US art market boom in a time of financial crisis

Foreign buyers help US art market boom in a time of financial crisis

The US art market is booming despite turmoil in the financial sector, thanks in part to foreign buyers encouraged by a weak dollar.

The fall auction season was marked by robust prices across most categories, with post-war and contemporary works in particular doing very well. Several records were set, generated billions of dollars for auction houses such as Sotheby’s, contributing to solid earnings but also exposing auctioneers to volatility when sales did not go as well as expected.

Experts credit the weak dollar, expanding world wealth and new buyers from countries not previously associated with art collecting. Over the past five years, wealthy buyers from Russia, China, India and West Asia have helped fuel the market.

“This is the first time in a long time where we’ve had truly universal world wealth expand. ... It’s a relatively new precedent that there is so much wealth being created all over the world," said Michael Moses, co-founder of the Mei Moses All Art Index, which looks at the historical performance of art as an investment and asset class.

These buyers paid astronomical amounts for art. An Andy Warhol painting sold for more than $71 million (Rs280 crore) in a May auction that brought in a total of nearly $385 million. A Matisse fetched more than $33.6 million in a November sale that also took in nearly $400 million. A limestone lion sculpture that measures 3 1/4 inches (8.2cm) hauled in $57 million earlier this month.

Still, the market has not been immune to turbulence.

Sotheby’s suffered a lacklustre sale of modern and impressionist works in November after Van Gogh’s The Fields—estimated at $28 million to $35 million—failed to sell and many other works sold below their estimates. Sotheby’s stock plunged 28% that day because of investors’ fears the company had over- extended itself in guaranteeing sellers’ reserve—the price the house promises to pay if a certain item does not sell.

“If you try to sell stuff for twice what it’s worth, the market’s going to say no," said Ian Peck, chief executive officer of the art-finance firm Art Capital Group. He added he heard the Van Gogh later sold privately for about $20 million.

Peck says his blanket advice to clients is to take a wait-and-see attitude for the next year, and see how the art market plays out.

Generally, the art market trails the Dow Jones industrial average and other market indexes by about six to eight months, Peck said. And stocks have been volatile, with big swings up and down, since the summer.

But he was optimistic that the art market would ride out the crisis and noted that his firm, which is essentially a private banker for art buyers, has seen a spike in loan applications to buy art.

Peck said that buyers with new money from Russia and China have a “limitless appetite for Western art and objects. Prices in some cases have doubled or tripled in the past year."

Overall, Peck estimates that the art market gained about 18% in 2006.