The Art Of Buying Art

Today's market looks awfully inflated. Tread carefully

In early December, Swiss publishing magnate Michael Ringier spent some time at Art Basel Miami Beach, one of the top contemporary art shows. Ringier is a big-time collector, but he didn't buy much. "The opening of the doors was like the beginning of the New York Marathon," he says. "People crowded to get inside first and then fought over pieces. When you saw something you liked, you didn't have to ask. It was sold."

The frenzy in Miami is one of many signs of how red-hot the art market is now. Artprice.com, a French company that tracks world auction results, figures overall prices in New York and London topped their mid-1990 peak for the first time this year -- by 33% and 19%, respectively. Meanwhile, Chinese art often soared to four or five times pre-auction estimates at recent Sotheby's and Christie's Hong Kong sales. Indian and Russian works are seeing similar gains.

What's going on? Art has become a trendy alternative investment, and veteran collectors worry the market is getting badly overpriced. "Collectors are being overwhelmed by the speculators," frets Vail (Colo.) collector Kent Logan.

Still, few experts predict a correction anytime soon because demand is far broader than in late 1990, when an end to speculative buying by Japanese collectors caused art prices to collapse. Major collectors continue to pay up for prime pieces: London dealer Giuseppe Eskenazi, acting for a Western buyer, laid out $27.7 million for a tiny, rare 14th century Chinese ceramic jar at a Christie's auction in London on July 12. But most art market veterans would agree with Dallas art economist David Kusin that "there are many reasons to view the next 12 to 18 months with abundant caution." Here are some dos and don'ts for collectors, no matter what you're spending:

Do keep in mind that art is not an efficient investment vehicle.

It's hard to sell fast if you need to raise cash and the world art market is small -- only $24 billion in turnover in 2004, Kusin estimates -- so speculation distorts prices quickly. Also, studies showing that art appreciates at about the same rate as stocks don't take into account art's high transaction costs, including markups of as much as 50% by private dealers, sales or value-added tax (8.375% in New York, 17.5% in London), and auction house buyer and seller fees that start at about 27% combined. On top of that, you face income or capital-gains taxes if you sell at a profit, as you would on stocks and bonds.

Do set spending limits -- and stick to them.

Savvy collectors pay up only for rarities, or to fill out their collection, as when Los Angeles philanthropist Eli Broad anted up $23.8 million for a 1962 steel sculpture by David Smith at Sotheby's (BID )on Nov. 11, the highest price ever for a contemporary work. Broad waited 11 years for the piece to come on the market after being outbid on a similar Smith sculpture.

Do your own due diligence so you'll be less vulnerable to fad-buying.

A serious collector like Boston money manager Scott Black can talk endlessly about the history and technique of the Impressionist-era paintings he collects because he spends much of his free time studying books and catalogs and going to shows. Check the bona fides of art advisers carefully; inexperienced ones come out of the woodwork in boom markets.

Don't get involved in buying collectives that plan to flip art at a profit.

Most of the art investment funds launched with such fanfare a few years ago have fizzled, but many small investment groups have formed. Among other weaknesses of the approach, top galleries are clamping down on speculators who flip purchases at auction for big profits. "We're very careful," says London gallery owner Victoria Miro. "We give preference to museums, or to people we know are building serious collections they plan to leave to museums."

Don't get caught up in the emerging-market art frenzy.

Chinese, Russian, and Indian art is soaring on the theory that prices will rise as these nations' economies expand. These markets, however, are getting very pricey, very fast. At Christie's auctions this fall, a piece by Yue Minjun, a 43-year-old Chinese artist, rose to $641,680, more than 10 times what it would have gone for five years ago, while one by Indian Tyeb Mehta, 80, fetched $1.6 million, five times the previous going price for a Mehta painting.

Do consider collecting photos rather than paintings and sculptures.

Prints by photographers such as Edward Weston are setting record prices, and experts believe works by other seminal photographers will appreciate, too. Joshua Holdeman, a senior vice-president with Christie's in New York, considers "any and all" work of the late Garry Winogrand, which starts at about $3,000, underpriced. Others cite the Tennessee-based color photography pioneer William Eggleston ($8,000 and up), Hungary's André Kertész ($3,000 and up), and Britain's Martin Parr ($1,500 and up).

Do consider buying what others won't.

Untrendy but museum-quality Old Master paintings and drawings can often be had for a relative song. New York dealer Robert Simon cites a beautiful oil portrait of an angel's head by the Italian artist Giulio Cesare Procaccini (1574-1625) on sale at his gallery for $30,000.

In general, remember that speculators pay up for pretty paintings that fit easily on a living room wall. Large or controversial works by the same artists sell for far less, as do big, edgy multimedia installations -- in which, say, a video plays within an imaginary décor. "You can get a whole [roomful of multimedia art] for $30,000," says Ingvild Goetz from Munich, who has been buying installations for her museum, the Goetz Collection (www.sammlung-goetz.de). And, of course, it may be cheaper to add on to your home, if need be, than to shell out the wild premiums some collectors are paying for art these days.

By Thane Peterson

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