How High Can the Art Market Go?

The art industry, one of the glitzier pieces of the global economy, seems to have shrugged off the 2009 recession with nonchalance. In 2010, Christie’s had the best year in its 245-year history.

The auction house’s numbers, released in late January, show its sales of art last year hit $5 billion, up 53% from 2009. Sotheby’s, too, posted astronomical results in 2010, based on reports from individual auctions; the firm’s aggregate numbers are due out in April.

Growth came across the board — and from across the world. Pablo Picasso’s “Nude, Green Leaves, and Bust” set a record for the most expensive art ever sold at an auction, going to a telephone bidder for US$106.5 million. Art sales in the Americas remained the most lucrative — almost $2 billion in 2010 (up 111% from 2009), but sales in Hong Kong doubled from a year earlier. Globally, Asian art — including jadeite, Chinese ceramics, cloisonné and contemporary works — pulled in $882.9 million in sales for the year for Christie’s.

Jewelry sales at Christie’s also broke records, surpassing $426.4 million for the year, a 56% increase from 2009. Christie’s Asia led the company’s jewelry sales for all regions, pulling in $163 million in total. The auction house flagged mainland China’s enthusiasm for both jadeite and “Western” jewelry as key reasons. A “perfect pink” diamond sold for $23.2 million after an intense bidding war at a Hong Kong auction, becoming the most expensive jewel ever sold in Asia.

Christie’s attributes its success to a buoyant art market peppered with more auctions, new customers, private sales and growth in online auctioneering. Although the firm’s 2010 online art and antiques sales represented only 3% of its total sales world-wide —  most works that sell online go for less than $20,000 — the online market is a reach for new buyers, a critical element of Christie’s future growth. The auction house’s Asia President François Curiel predicts that by 2015, the market for Chinese works of art will be as big as the market for art from Europe and North America.

But there is more to the picture. Emilie Faure of the Farjam Collection in Dubai says that in the past decade, as individuals’ investment portfolios have grown more complicated and diverse, art has emerged as an appealing option. According to the Mei/Moses All Art Index, a measure of fine art’s long-term price performance, in 2010 works of art posted a return of 16.6%, outpacing the 15.1% total return for the S&P 500-stock index. The London-based Fine Art Fund, launched by Christie’s former finance director, Phillip Hoffman, is raising $100 million to invest in the likes of Old Master paintings. It’s aimed at investors with a high net worth: The minimum buy-in is $250,000.

Such bullishness inevitably brings skepticism.

The art market is opaque and largely unregulated. While auction houses like Christie’s and Sotheby’s report prices paid, they’re a secondary market. In the primary market for art — galleries — information is tightly held. No one knows what pieces they sell, what prices they get or who the buyers are, making it hard to attach a value to any work. And then there’s the nagging worry that last year’s sales boom may be seen in retrospect as a bubble, fueled by low interest rates and a lack of palatable investment alternatives.

“I think there is a small group of buyers at that level, who pay $3 to $5 million for a work, who don’t necessarily have the best education,” says Chin-Chin Yap, an independent specialist in Chinese art who formerly worked at the auction house Phillips de Pury. Summing up the situation, Ms. Yap puts it bluntly: “I think they are overpaying for A-minus work.”