The Art Market and Brexit

With the final phase of Brexit looming ever nearer and no defined solution yet emerging, all sectors of the UK economy are thinking ahead nervously to discern what effect this messy divorce with Europe will mean for them – this is no less the case than with the UK Art Market.

The British art and antiques market is the third largest of its kind in the world with a global share of 22%, and a 65% share of the European Union’s art and antiques market. It represents total sales of over £10 billion annually and it is comprised of 7,850 businesses, providing direct employment for 41,420. The British art market is defined as being a ‘entrepot market’ in that it serves as a conduit for sales of artwork which are often imported into the UK solely to be sold here and then re-exported out of the country – one only has to look at the main Impressionist, Contemporary and Russian sales to demonstrate this, together with the top tier of international art fairs such as Frieze, Frieze Masters, Masterpiece and PAD. The Art Market is therefore particularly active and dependent upon cross-border trade.

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Mark Carney, Governor of the Bank of England, originally predicted that Britain would probably suffer a moderate Post Brexit downturn in the economy; this prediction now seems to be highly conservative with current estimates ranging from post-Apocalyptic melt down to a simple short-term realignment of the UK economy.

What is certain is that the strength of the Pound will continue to fall until clarity has finally emerged. This, in itself, is not universally bad for the UK Art Market as it makes purchasing UK goods cheaper for foreign investors – UK collectors, however, find it more expensive to buy internationally in the short term. The one category of high-value secondary art that will be affected negatively post-Brexit is art where the primary market is British buyers. Consignors may choose to wait for the Pound to stabilize and uncertainty to decline. The obvious category is Modern British Art of the 20th century. It is also possible that he Old Master market will be similarly hit in the short term as UK buyers make up a small but significant portion of the collector base.

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Having said this, it is not all doom and gloom for the UK market, typically UK collectors only represent between 10% of the total turnover at the main London Auctions – this figure includes purchases by foreigners living in the UK. Many Eastern European and Middle Eastern buyers will still prefer London over New York. Although it is true that some consignors may prefer to offer their works in New York rather than in London.

Post Brexit, London may indeed even emerge to be a stronger auction market compared to Paris and the rest of Europe as it should be free of EU regulations, particularly the Artist’s Resale Rights levy (ARR). This had final implementation in the U.K. in 2012, after six years of strong resistance by the government. ARR entitles creators of original works of art to a royalty each time a work is resold through an auction house or dealer for more than €1,000. It is levied at 4% on sales between €1,000 and €50,000, declining to 0.25% on sales at more than €500,000. ARR continues for 70 years after the artist’s death.

ARR has put the U.K. at a distinct disadvantage for art sales compared to dealers and auction houses in New York, Switzerland, or Hong Kong, which do not levy the charge. It has been suggested that the UK’s global art market share in post-war and contemporary (the sector most affected by ARR) fell from 35% to 15% from 2008 to 2013, due mainly to the implementation of ARR in 2006.

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Brexit or not, London will continue to be the preferred choice of residence for international Non-Dom Billionaires, many of whom are major art purchasers, and it is doubtful that a new government will do nothing to make the city or its tax advantages less attractive. London is a major centre for professional and financial services because of the rule of law, and attractive because of its cultural life and quality of infrastructure. The Brexit vote did not change any of this.

The uncertainty surrounding the whole Brexit negotiations has led to a great deal of money being transferred around the money markets to gold, US Treasuries and similar investments deemed a safe store of wealth. Historically, when financial markets are in turmoil, art is seen as a good store of long-term value, and a hedge against inflation and changes in the relative value of currencies. For iconic works, there’s a chance to to peg the purchase price against the future value of the US Dollar. The new financial fragility of the EU means that investors will be concerned about high-debt, high-risk member countries—notably Greece and Portugal, but also Spain and Italy. Borrowing for art purchases against assets in these countries may become more problematic and expensive so it is reasonable to expect that these national art markets will experience a downturn and will languish for a while.

In periods of uncertainly such as Brexit, art investors tend to moderate risk by investing in works by Blue Chip artists and more established genres rather than emerging artists since Blue-Chip artist are believed to be safer stores of value, even if the upside profit potential is less. Undoubtedly this will strengthen the high-end Impressionist and Modern markets, which are already the main players of the total market. This same trend will no doubt be experienced at the top end of the Jewellery and collectors watch markets. There is a consensus in the art market that this ‘flight to the better-known’ will be the case at least over the next year or two.

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In conclusion, as with everything surrounding Brexit, no certainly exists about how it will play out and the affect it will have on the UK Art and Antiques market – but in fairness, why would we expect there to be certainly following the messiest and most expensive divorce in world history? One thing is clear, in the medium to long term the Art Market will survive and adapt to any and all challenges thrown at it, but in the short term the domestic market will undoubtedly show signs of significant market contraction – but this, in itself, will potentially create new investing opportunities for collectors in the medium term.

As ever, it is the top end of the market which will weather the storm best with top examples by established artists attracting attention and achieving strong prices as investors diversify into these Blue-Chip works. Paradoxically, the strong prices that this alternative investing produce will no doubt inadvertently do much to help bolster global confidence in the art market in the medium to long-term.

Call us today to enquire about an appointment on 01883 722736 or email [email protected] or visit our website www.doerrvaluations.co.uk

Asian Art Valuations

The History of Collecting Oriental Works of Art

Vase, made during the reign of the Emperor Qianlong. £53.1 million

Vase, made during the reign of the Emperor Qianlong. £53.1 million

In Europe the collecting of Oriental works of art goes back to the end of the 15th Century when Portuguese traders began to import Chinese porcelain and this fashion for exotic items from the Far East soon swept the whole of Europe with many countries vying to control the market.

Such was the popularity and value of Chinese porcelain that in 1717 Augustus the Strong of Saxony swapped 151 pieces of Chinese porcelain for 600 of the King of Prussia’s finest soldiers.

Other materials were also highly sought after by the Europeans including silk, lacquer and Jade.

In the middle of the 17th century the civil war in China led to a shortage of Chinese goods and so the Western traders approached the Japanese to produce similar items, whilst back in Europe many people were trying to produce wares in the style of the Chinese.

Until fairly recently the market in the West has been dominated by Europeans and North Americans, though the Japanese, who had also collected Chinese porcelain for over 1,000 years, were also buyers.

Recent Trends
In the 21st century the increasing wealth of a great many Chinese nationals has led them to try and buy back their heritage.

The best prices are paid for items made the for the domestic market, particularly those made for the Imperial Court, whilst pieces made for export to the West are largely looked down upon as being inferior.

Imperial porcelain from the 18th century is especially sought after for its high quality, which was often dismissed by Western collectors as lacking the soul and character of Ming and earlier wares.

The finest of these 18th century pieces make many millions of pounds, most famously the vase, made during the reign of the Emperor Qianlong, who ruled China from 1736 to 1795, which sold at a small auction in the Home Counties for £53.1 million.

In recent years the Chinese market has become much more selective as knowledge has increased amongst the dealers and collectors in mainland China, where a few years ago Chinese pieces were bought in an almost indiscriminate manner there is now a greater appreciation of the range of Chinese artefacts and their relative quality.

The high prices and subsequent publicity achieved by Chinese piece brought a considerable number of items onto the market and so the prices for more common pieces fell.

Another result of the high prices being paid for Chinese pieces has been that extremely good copies are now being made which has undermined certain sections of the market and means that provenance has now become of even greater importance than previously, with collectors looking for evidence that a piece has a confirmed history.

Because of strict limitations on the export of cultural items from China, once a piece has been bought and taken to China it can no longer leave the country creating a diminishing supply of good quality pieces in the West, one effect of this has been to broaden the range of pieces collected, pushing up the prices for Ming and earlier pieces, the increase in knowledge of Chinese collectors has also enabled this to happen.

1100 AD porcelain brush washer. £30 million

1100 AD porcelain brush washer. £30 million

 

Chinese porcelain plate, Qianlong period (1736-1795) £40 million

Chinese porcelain plate, Qianlong period (1736-1795) £40 million

Recently a porcelain brush washer from the Imperial Ru kiln, made around 1100 AD, 13cm diameter with a pale blue/green glaze and typical finely controlled cracking to the glaze, sold in Hong Kong for 294,287,500 HKD, around £30 million.

The entry of the Chinese collectors into the market has pushed many of the finest pieces out of the reach of Western Collectors, though there are still areas that are affordable and have not yet been greatly affected by recent events, Chinese export porcelain from the 18th century is still remarkably inexpensive with many attractive piece passing through UK auctions and fairs on a daily basis.

Values for attractive pieces often being measured in the tens and hundreds of pounds rather than the many thousands and even millions, it is possible to buy individual plates from the 18th century in good condition for less than £50, fine export examples with the most attractive and rarest decoration rarely cost more than a couple of thousand leaving a broad and interesting collecting area that is still surprisingly affordable.

Chinese porcelain plate, Qianlong period (1736-1795) £40 million

Chinese porcelain plate, Qianlong period (1736-1795) £40 million

 

 

 

 

 

 

 

 

Call us today to enquire about an appointment on 01883 722736 or email
[email protected] or visit our website www.doerrvaluations.co.uk