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Why is the art market rising? : An expert’s take
The art market sure is rolling along with plenty of positive momentum, even as the rest of the financial world feels rather shaky and soft, trembling at any minor shock. Though he cannot totally explain and grasp this phenomenon, as he himself confesses, writer-columnist Adam Lindemann sees plausible reasons for this – some of them economic and some pertaining specifically to the art world.

As he rightly notes in an elaborate essay (The New York Observer), we are presently in an exceptionally low-interest-rate scenario, and sees no reason for things to dramatically change in the near future. So if you purchase government bonds, there is hardly any yield. The same holds true if you decide to put money in your savings account. Again there is no guarantee of returns in the stock market if you put your hard earned money there. It has been a rather sickening roller coaster for most investors across the world – making it difficult to bet on the upward or downward swing.

It is not surprising then that the idea of ‘hard and tangible assets’ is gaining ground and popularity today. In this context, Mr Lindemann explains, “Art may not be very hard, but it is tangible, at least; there is an international market (and demand) for it both privately and at auction. If inflation rears its ugly head, people believe that prices of art will inflate along with real estate and most other hard (or tangible) assets.” According to him, this will also drive prices of vintage automobiles, great furniture pieces, ceramics, antiquities, and most other exceptional collectible, which draw the attention the über-rich internationally. They will be more than willing to acquire such ‘arty’ assets.

The expert cites gold as the best example of increasing value in a depressed economic environment. It is now at an all-time high, having surged to $1,350 from $550 an ounce, a couple of years. Though it carries no intrinsic value other than the one defined by its constant demand in the jewelry industry, it remains the safest thing to put your cash into. “That's exactly how I like to feel about art: It perhaps has no use, but it has real value, at least in the minds of many who love it,” emphasizes Mr. Lindemann. And where does the value come into play, he feels?

Firstly, the acquisitive nature of the collector is something simple economic analysis is not able to account for. Artworks soar above the estimated prices for either they are underpriced, or for speculation that helps them to attain a high price. Some rare works have been impossible to acquire for decades, and witness ‘pent-up demand’ from genuine collectors waiting eagerly for a shot. But he also sounds a note of caution. The broad health of the art market is still somewhat fictional. What does he really imply by this? To put it in his words:

“The high end (above $1 million) showed signs of strength; the low end (under $100,000) was equally robust at fairs and in the galleries, in 2010. But what really suffered is the ‘middle of the market’. This makes sense, because the big trophy hunters are not affected much by the economy. They still have the resources to go after the big game. Then there are real aficionados who simply love to ‘collect’. However, people are less motivated chasing things - neither of trophy quality nor trendy.” This observation also perhaps holds true for the Indian art market.

In a scenario where not everything on offer will sell, the major auction houses have been prudent enough to groom their catalogs for keeping the ‘buy-in’ rates low, and also lowering the consigners’ estimates and the expectations. The reflection of the rebound is mirrored in Sotheby's stock that has managed to rally all the way up to a high of $47 from a 52-week low of $19. The strong auction sales seem to suggest that while the art market is not back to late-2007 peak levels, it is also not that far off!

The art analyst sums up to state: “As 2010 comes to an end, things are overall far better than almost anyone in the market predicted. The year seemed to me like one big self-fulfilling prophecy: The auction experts and the dealers kept telling us that great art is rare and valuable, a good avenue to store wealth for self-satisfaction and also as a worthy investment. On the face of it, and in light of a stuttering economy, these views looked self-serving. But they proved to be correct, ultimately.”