Investing in Russian art is increasingly popular with people from different lines of business who want to save and build wealth. Experience shows that it really could be a successful investment given that there is a thorough analysis of factors affecting the price of the artwork and the artist’s popularity.
The key feature of art objects is that, in addition to prime cost, the consumer price is affected by creative factors. It even happens that the price of a work does not correlate to creation costs. Art objects have the following features:
• unique character
• reproducibility
• contingent price
• prospects for price growth
Contemporary collectors do not focus on artworks from the past centuries, but are ready to give a chance to young artists. At the same time, prices of their works sometimes grow so quickly that not everyone can afford to buy them.
Art market pricing
Prices on the art market follow their own rules. For a novice artist who works in an existing genre and style, the price will depend on their technique, art materials, artwork size and quality. As the artist becomes more famous, the price of their works would increase in line with their participation in exhibitions and interest from museums and private collectors. Numerous factors affect the price of an artwork:
- Artistic merit: unique qualities and peculiarity of a given work of art. It is a non-material feature which cannot be estimated objectively. Artistic merit is a value judgement.
- The artist’s experience in taking part in international exhibitions and projects; holding personal shows and publishing in reputable catalogues; critical acclaim and reputable experts on the art market; purchasing of artworks by museums and famous collectors;
- The number of works created by an artist (their uninterrupted work shows popularity and the ability to follow market demand regarding the number of works)
- Artist popularity. The promotion of the name is usually a task for professionals. The more popular the artist, the more expensive their artworks. In this case, the artist’s name can be compared to a brand name. If you believe that it would develop (by itself or with the help of a gallery), their works could be a good investment.
The prospect of price growth can be assessed by comparing the artist’s works in the present and 10–15 years ago. If their works sold at cost price in the early days, new works could cost millions.
Russian artists at auctions
Despite the pandemic, auctions were held last year in Russia and abroad, selling many works by Russian artists. The record-holders are:
- Oleg Vasiliev, Space II. Sold for $192,168
- Valery Koshlyakov, Colonnade. Sold for $185,304
- Ivan Klyun, Teapot. Sold for $112,336
- Konstantin Rozhdestvensky and his Farm Woman. The painting was estimated at $104,312.
Noteworthy are also the artists whose paintings were estimated at less than $100K:
- Kazimir Malevich, Head of a Peasant: $88,264
- Dmitry Plavinsky, Georgia Landing $88,264
- Arkhip Kuindzhi, The Georgian Military Road (Mountain Landscape): $77,420
- Alexander Rodchenko, Album White Sea Baltic Waterway: 1932-1933: $69,360
- Ivan Shishkin, The Forest Clearing: $68,000
- Dmitry Krasnopevtsev, Paper Roll and Roman Bubbles: A Scene: $60,982
Art market prospects for the next decade
The art market is lagging behind other investment objects, which occurs due to the lack of transparency in the sector. Yet, the amount of investment in artworks has increased by 10% as compared to last year. Art objects are seen as risky investment. To solve this problem, efforts have been made to develop new methods and schemes for investing in art, such as AI, blockchain and predictive analytics, and to introduce new legislation to reduce the risk of money laundering (EU Anti-money laundering directive).
Investing in art objects
The average annual percentage increase in the art market has stood at 8% as compared to 3% for S&P 500 stocks, with the cumulative percentage calculated over the past eight years. Art objects are associated with investing in gold, which proves that artworks are seen not as an investment “portfolio” but rather as defensive assets. The conditions in Russia’s auction market could be changed through the use of digital tokens. Over the past few years, average annual investments in the arts and cultural infrastructure have accounted for $8-9 bln. Joint investments that utilize the blockchain technology have proven popular among next-generation millennial customers.
Art investment risks
Many believe that the market will require efforts to improve government regulation of services. According to a survey conducted back in 2017, 60% of founders of private assets believed that the market should regulate itself. In 2020, the amount of those who shared that opinion decreased, with a greater number of those who think the market should be modernized (80% of the polled art market professionals, 81% of art collectors, and 76% of investors). 84% of the surveyed asset managers claimed that the major risk in the art market is that of buying an art forgery as well as impossibility of learning about the artwork’s actual origin. People’s trust in authenticity of items sold in the art market remains low: the poll revealed that only 16% of asset managers, 30% of art collectors and 31% of art market professionals said they rely on received information.
A growth in investments in the art sector may occur with expanding the scope of anti-money laundering legislation. The official document can cover art object deals worth over €10K. Regulation of investment process becomes a starting point for changes in the art sector.
Developments in the Russian art market
“The Russian art market remains modest as compared to major world markets. Geopolitical and economic issues have negatively affected its growth, with slumping sales in Russian art auctions over the past five years. In 2018, Russia and CIS countries experienced negative growth among all regions. Yet, global changes are relevant for Russia, which has been proven by an increasing demand for new services in the art market,” says Svetlana Meyer, Managing Partner of Tax and Legal Department at Deloitte CIS.
In 2018, sales at Sotheby’s, Christie’s and MacDougall’s auctions in Russia totaled 0.9% of global sales, standing at $41.1 mio and indicating a 19.9% fall as compared to the previous year. This illustrates the negative trend in the art market, Svetlana says. The past few years have seen a drop in sales, which leaves the Russian market behind. The average annual reduction has been 8.3%, the second worst global indicator of the market dynamics after China. The majority of those surveyed believe that sales will continue to go down, with only 14% expecting a long-term growth.
Technologies for Russian market growth
Modern technologies will positively affect sales dynamics, according to 76% of art market professionals and 84% of art collectors. Transparency of investment and regulatory compliance will allow for increasing the average annual sales percentage. Over 70% of the market players noted that the lack of transparency is making a negative effect on auction reputation, which deters investors. New technologies will allow avoiding this trend, with a growing popularity of online platforms in the art market where sales have already went up by 9.8% per year and reached $4.64 bln.
By Irina Sarkisova, Head, Aravana Multifamily Office