Investment: art market painted into a corner The Australian Business Review, Monday, June 20, 2016 p17

Following is an article from Monday’s The Australian Business Review acknowledging the effect that the previous government’s 2011 Self-managed Superfund amendments have had on investors and the art market. This has been an ongoing drama for the arts industry since the amendments were introduced and simply requires a basic element of common sense to have the super fund amendments repealed in order to allow the market to return to a healthy state of growth. However, since the coalition came into government, the assistant treasurers – whose responsibility this area falls under – have been Arthur Sinodinos, Mathias Cormann (acting), Josh Frydenberg, and now Kelly O’Dwyer. That makes four assistant treasurers in 33 months, no wonder it is difficult for any change to come into effect. The only permanence over this period has been the bureaucrats responsible for the drafting and administration of the legislation. 


Art market painted into a corner

Article by Michaela Boland, National Arts writer, Sydney.


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Michael Fox, art adviser, accountant and gallery owner, with two Gloria Petyarre paintings. Picture: Stuart McEvoy

As an accountant, art valuer and nascent gallery owner Michael Fox has witnessed the free falling art market at close quarters.

Self-managed superannuation funds have been shedding their artworks at what has ­become a feverish pace as the June 30 compliance deadline ­approaches, six years after ­Jeremy Cooper’s superannuation review recommended tightening the rules for self-managed fund art collecting.

In 2009 Australian Taxation Office figures revealed the total value of collectibles, primarily art, in SMSF, was $700 million — by 2014 the figure was $385m and it is understood to have dwindled to a negligible amount since.

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The art market has been decimated: prices for Aboriginal paintings, in particular, have plummeted. Fox has consigned for sale in his eponymous gallery two canvases by Utopia painter Gloria Petyarre, once among the nation’s most collectable indigenous artists. He bought them in 2005 for $5000 and is now endeavouring to sell them for $1000 each. “They’re beautiful”, he said, though he is yet to find a buyer.

The Petyarre owner will be lucky if he recovers 20 per cent of his original investment after consignment fees.

Another collector who spoke on condition of anonymity said he was considerably worse off, having spent $800,000 acquiring indigenous art in his superannuation fund.

He now hopes to realise $300,000 in a series of auctions this year as he liquidates all 300 works. “We tried to help the artists,” he said of his buying trips to remote art centres acquiring pieces he intended to house for decades in his superannuation fund.

“Now I’m selling them without ever really enjoying them, they went straight into storage, costing $35,000 to $40,000 a year,” he said.

At auction, savvy buyers sit on their hands if they know a work is owned by a super fund, correctly figuring that the buyer must sell and an even cheaper price is negotiable if a work is passed-in.

This collector is critical of the auction houses focused on volume, saying they just want works to sell irrespective of price.

The Australian spoke to another collector who noticed a work he liked did not sell at a recent auction where it was listed for $4000 to $6000. He offered $2000 and successfully bought it.

From June 30, in line with the Cooper Review recommendations, which received bipartisan support, all art in SMSF must be in secure storage, insured and regularly valued — combined costs few collectors consider worthwhile in the long term.

Aboriginal art was the biggest beneficiary of super fund collecting, so it follows it has been hardest hit.

Fox traces the boom in SMSF collecting to 2007 when the Howard government increased the ceiling on the amount of collectable individual funds could hold.

There was an immediate market uptick: auction records for the year show total art sales topped $175.6m, of which $25m was Aboriginal art.

Generous SMSF rules were not the only contributing factor, with the booming general economy also contributing to higher prices.

Aboriginal art now accounts for about $6m worth of annual auction sales, not including high profile collector sales such as Dutch department store heir Thomas Vroom and pathology millionaires Elizabeth and the late Colin Laverty.

Renowned collectors such as the Lavertys and Vroom can sell their art at a premium on account of their name adding prestige to the provenance of individual works.

Coo-ee Gallery owner Adrian Newstead, once of the country’s most renowned names in the Aboriginal art trade, warned “we’re coming off a bubble … and I don’t even know if we’ve hit the bottom yet”.

Newstead points to Australian Bureau of Statistics figures showing there were 514 art galleries in Australia in 2000, today he says there are fewer than 250. “Galleries that represent indigenous artists have been hit worst of all; two in every three commercial indigenous art galleries have closed their doors,” he said.

Newstead has called on the government to invest in supporting Aboriginal art and bring an end to ruthless undercutting whereby remote aboriginal art centres, which are supported with federal funds, sell directly to collectors.

He says this wholesale selling, more common after the introduction in 2010 of the 5 per cent Resale Royalty Tax on artworks over $1000, has driven many Aboriginal art dealers to close their doors.

He slammed the ALP’s arts policy, which vows to scrap the federal government’s discretionary Catalyst arts fund and return $70m to the Australia Council.

Newstead said Catalyst was a terrific, nimble initiative and the Australia Council represented a death by committee approach.

Art valuers have experienced an surge in business on account of the SMSF deadline, with many collectors deciding to acquire art from their funds and realise a loss on paper rather than sell work at a loss on the market.

Several valuers told The Australian they had been flat out for years working through the backlog. The action houses have been criticised because as prices for individual artworks have fallen, they have raised their buyer’s premium from 20 to 22 per cent and 25 per cent.

Sellers also pay negotiable 10 per cent consignment fees while auction houses have been negotiating ever lower pre-sale estimates, with the enticement that the lower you list a work, the more interest it is likely to generate.

Owners complain that if an artwork does not sell, the minimum asking price hangs around online perpetually clawing down the price that can be achieved.

One small upside to the SMSF changes is the artworks once collected by funds and locked away have been released for people to enjoy.

Newstead said, “to make a painting more desirable it has to be seen and to put it away is death to art. To increase the value of art you put it on your wall, have dinner parties under it and people who like it ask ‘who’s that?’.”

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