By Hind Essoussi
The perception of Art as a profitable form of investment was fueled by the economic boom. The Art market was just one manifestation of the global speculative bubble which also encompassed equity, bonds, and shares. In the period between 2003 and 2007, Sotheby’s saw a 600% increase in turnover – from $218 million in 2003, to $1.3 billion by the end of the five years. However, estimates now suggest that during the boom, the Art market was over-rated by up to 50%; it was only following the financial crisis of 2008 that the Art market corrected itself. Needless to say, those markets most affected by boom and that had experienced exponential increases, were those most affected by bust; emerging Art markets, such as the Indian market, and the Contemporary Art market (wherein sales fell by 76.2% post-2008) are just two examples of markets that were hit hardest.
In accounting for the bust in the Art market, several factors must be considered. Firstly, the Art market’s historic correlation with the financial markets; just as the global downturn affected investor confidence in the stock exchange, so too did the Art market suffer from increased caution on the part of investors. Moreover, the bust was exacerbated by the shift in purchasing power away from established art collectors, towards new money – those sorts of collectors lambasted by Charles Saatchi as “vulgar”. Established collectors had acted as market regulators; their stepping away from the market led to the spiraling prices of artworks and the market’s descent into a free-for-all. Thirdly, the legally-binding guarantees offered by Christie’s and Sotheby’s – in a bid to secure prize lots and undercut competition – had disastrous financial ramifications for both of the rival auction houses. The extent of insider-dealing was highlighted by the 2002 price-fixing scandal, which resulted in Sotheby’s being fined £12 million by the EC for rigging the market in collusion with Christie’s. Continue reading →
