Arts markets under the hammer as rich investors cool off

The art market appears to be entering its cooling-off period. For the past six years, an influx of newly wealthy collectors — particularly from China — has pushed up prices for everything from Ming vases to Claude Monet, but now there are signs that the bidding paddles could come down hard.

Falling oil prices, volatile stock swings and China’s deepening economic woes are all taking their toll on the art market and spooking the world’s wealthy, who are counted upon to splurge for masterpieces and brand-new artworks. Christie’s sold $7.4 billion in art last year, a billion less than it sold a year earlier; rival Sotheby’s $6.7 billion in sales last year were flat with totals the year before.

This week — as both houses kick off a winter round of impressionist, modern and contemporary art sales in London — collectors will find thinner auction catalogues and smaller estimates for art for the first time in years. The priciest piece up for bid this time around? A Pablo Picasso painting, Head of a Woman, that Sotheby’s expects to sell for at least $US23.4 million ($33.1m). Not all Picassos are alike, but that estimate is only 13 per cent of the value of a nearly $180m Picasso, Women of Algiers (Version O), that Christie’s sold last May.

“I’m 99 per cent sure we’re in the mania phase of an art-market bubble right now,” says Roman Kraussl, an economist and associate professor at the Luxembourg School of Finance.

Earlier this month, Kraussl and two university colleagues published a study in theJournal of Empirical Finance thatanalysed more than a million auction records from the past three decades. They determined that art values can fluctuate dramatically like stocks, and they wanted to see if they could detect the next art-market slowdown.

Their conclusion: it’s already happening, particularly for the categories of contemporary and American art where speculation and price spikes have catapulted art values faster than other collecting categories.

Kraussl says his research suggests a market correction could eventually ripple to other collecting areas, but will likely stop short of an art-world market crash. He said the wealthy still need places to store their cash — and art remains a prestigious outlet.

A Citi Private Bank report published two months ago said the global art market has grown at an average annual rate of 13 per cent since 2000, based on auction turnover, but its research suggests the art market is settling into a 9 per cent annual growth rate — not bad, given that over the same period global domestic product and exports grew at 3.5 per cent and 8.1 per cent a year, respectively.

The game-changer for the art market: maturing Chinese collectors are still buying art, but their shopping sprees are now “more selective and savvy,” says Suzanne Gyorgy, head of Citi Private Bank Art Advisory and Finance, who contributed to the report. (Sotheby’s sales in Beijing last year fell 69 per cent from the year before.)

Gyorgy says collectors in China and elsewhere are also feeling a measure of sticker shock at the escalating prices being asked for blue-chip art, a reaction that may help the market reach a natural price cap. “We’ve been hoping for a slight correction to bring some sanity to this market,” she says. “The way prices were climbing, the whole thing was starting to feel artificial.”

In art-world parlance, artificial means choreographed, a description often hurled at auctions that feature artworks that are already essentially presold. Last year, auction houses tripped over themselves to offer financial sweeteners to sellers. These agreements guaranteed the sellers’ offerings would sell to prearranged, third-party investors, if no one else competed during the sales themselves. This guarantee race peaked when Christie’s extended guarantees to half its offerings during its major spring sales, but the practice now appears to be tapering off.

ArtTactic, a London firm that tracks auctions, said in its “Global Art Market Review & Outlook 2016” report that it expects the houses to have “less appetite for this type of risk in the coming year,” a move that could discourage skittish sellers from putting trophies up for sale. Sotheby’s says it has extended guarantees to $92m worth of art so far this year — including four pieces for sale in London. The house is still licking its wounds after losing $9m on a $515m guarantee it gave the heirs of its former owner, A. Alfred Taubman, last year when a sale of Taubman’s estate disappointed.

Expect shoppers to play it safer as well this year by gravitating toward burgeoning art hot spots that haven’t seen huge price rises yet — like Singapore, India, Africa and Iran — as well as the world’s 50 best-known artists like Picasso and Andy Warhol, whose price levels aren’t likely to plunge as far as untested newcomers.

The auction houses are already bracing for retrenchment by filling London sales with these household names: tomorrow, Sotheby’s plans to sell a cheery, red Henri Matisse scene from 1923, The Piano Lesson, which has been in one British collection for 89 years. It’s expected to sell for at least $17.6m.

Christie’s sale of impressionist and modern art today is anchored by Egon Schiele’sSelf Portrait With Fingers Spread, a 1909 black-and-gold depiction of the Austrian painter that last sold at auction nine years ago for $8.9m. This time, the house is asking at least $8.5m for it.

In contemporary art, Sotheby’s specialist Cheyenne Westphal says her strategy is to “focus on artists we know we sell well” like Gerhard Richter.

Sotheby’s February 10 sale also includes a burlap bag from Arte Povera artist Alberto Burri. Stitched to a canvas and partially slathered in red paint, Bag and Red is estimated to sell for at least $13.6m.

Edmond Francey, head of Christie’s contemporary sale on February 11, says the event is anchored by works of British artists who still enjoy hometown hero status among London’s collectors. These artists include Peter Doig, Francis Bacon, Lucian Freud and David Hockney. Doig’s The Architect’s Home in the Ravine is coming back to auction for the third time in a decade: the 1991 painting sold for $3.6m in 2007 and for $11.9m three years ago.


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