June 21, 2006

Art Boom Here to Stay, or is it Going, Going, Gone?

By Mike Collett-White

LONDON -- The recent sale of a Gustav Klimt portrait for a record $135 million finally confirmed that the art market was back to the giddy heights of the late 1980s.

What experts cannot agree on is whether this time around values are destined to mirror the dramatic collapse that began in 1990.

Leading auction houses are confident the conditions are in place for sustained growth, unlike 16 years ago when speculative money, much of it Japanese, left the market vulnerable to collapse when economic indicators turned south.

Art sale trackers and experts are less sure, arguing that some sectors of the market are overvalued and that art, like other industries, is cyclical.

The New York magazine summed up the uncertainty hanging over the rarified world of masters past and present in an article entitled: "Five Theories on Why the Art Market Can't Crash (And Why it Will Anyway)."

Anders Petterson, head of ArtTactic (www.arttactic.com) which analyses the art business, agrees that this time around the geographical and social spread of buyers means it is less vulnerable to economic slowdown in one country or region.

But he still sees cause for concern for art investors.

"I think in many ways we are approaching a similar scenario to the late 1980s," he said. "The speculative motive is still there, which I still believe will be the market's downfall."

He said the short term seemed secure for buyers of top quality paintings, whether contemporary or modern, as underlined by benchmarks set by the two big auction houses at their latest sales in New York and London.

This week Sotheby's held the biggest auction ever in London when its Impressionist and Modern Art sale raised $164 million, and last month in New York it sold a Picasso for $95 million, the second most expensive painting in auction history.

Christie's was close behind with a corresponding London auction late on Tuesday worth $160 million, its highest total.


Jussi Pylkkanen, President of Christie's Europe, said the number of fine art buyers had quadrupled since the 1980s boom.

"Obviously there have been some major social changes over the last 10 years with a huge bearing on the number of people able to spend," he told Reuters. "One thinks of China and the amount of wealth generated there, India and Russia."

Russian clients bought seven percent of the lots on sale at the London Christie's sale, the buyer of the $95 million Picasso was reported to be Russian and in 2004, Russian tycoon Viktor Vekselberg paid over $90 million for a Faberge egg collection.

Soaring prices for oil and other commodities have given the advantage to players from Russia and the Middle East, another region where auction houses are upping their presence.

Philip Hook, director of the impressionist and modern art department at Sotheby's, said he was encouraged both by the steady rise in values, rather than a sudden surge as in the 1980s, and by a higher level of expertise among bidders.

"I think we feel much more confident about solidity of this market," he told Reuters.

In the longer term ArtTactic's Petterson said the global economy could be the greatest risk to the art market.

"An economic slowdown in the United States could have implications on all the other economies," he said.

"The first ones to leave such a market is not the established collectors but the speculators, and the current market seems to be driven by the latter."