Why is art the top alternative investment choice for Asia’s wealthy?

Step into any one of Singapore’s latest crop of hotels, restaurants and financial institutions, and you’ll notice that art features prominently in each. Works by Terence Tan deck the lifts and suites in Artyzen Singapore. At the Mondrian Singapore Duxton, a large format painting by Ian Davenport enlivens the third floor lobby.

At level 63 of One Raffles Place, a dramatic, 10m-tall steel sculpture by Jun Ong caps the rooftop bar Nova like a Christmas tree topper. One level below, a striking digital creation by onformative animates the interiors of culinary and nightlife hotspot HighHouse.

In the newly opened AIA Wealth Centre at Six Battery Road, an installation by Natalia Tan anchors the centre’s art collection. The collection, composed of works by esteemed Singapore artists such as Lim Tze Peng, Low Puay Hua and Vincent Chua, will be showcased on rotation in a dedicated “art corridor”.

It’s a sign of the times that art is now playing an expanded role in the very heart of Singapore’s financial district. There’s a growing trend among Asia's high- and ultra-high-net-worth individuals (HNWIs and UHNWIs) to invest heavily in art – especially “blue-chip” works – as a means of diversifying their portfolios and leveraging capital appreciation.

According to figures from the latest Knight Frank Luxury Investment Index – which forms part of the Knight Frank Wealth Report and tracks the performance of 10 popular passion investments – art was the top-performing luxury asset class in 2023. The 10 categories are: Art, classic cars, coloured diamonds, coins, furniture, handbags, jewellery, watches, wines and whiskies.

As Leonard Tay, Head of Research, Knight Frank Singapore explained: “Taste for the finer things in life by the ultra-rich in Singapore changed a little in 2023, with a preference for art moving up the rungs from fourth position in the previous year. A majority of 58 per cent of Singapore respondents ranked art as the top investment of passion to be sought after in 2024, followed by watches and wine with 49 per cent and 35 per cent of the responses respectively.”

FAIR GAME

Certainly, the proliferation of major art fairs and art spaces in recent years has led to an increase in awareness, appreciation and appetite for art. “Art has become much more accessible over the last decade. Major regional art fairs such as Art Basel Hong Kong, ART SG and the like have made art much more available to a wider audience,” noted Kim Tay, co-founder of art and design consultancy The Artling, which is behind the installations at Artyzen, Mondrian, Nova and HighHouse.

“Our annual high-net-worth collector survey, published in The Art Basel and UBS Survey of Global Collecting, revealed a strong appetite for art events in Singapore. A remarkable 91 per cent of collectors surveyed in Singapore plan to attend art-related events in 2024, with 48 per cent maintaining and 43 per cent increasing their engagement levels,” stated Jin Yee Young, co-head, UBS Global Wealth Management Asia-Pacific and country head, UBS Singapore.

The third edition of ART SG drew 45,300 visitors over its four-day run at the Marina Bay Sands Expo and Convention Centre in January 2024. Some of those visitors did not leave empty-handed. London-based gallery Waddington Custot sold a sculpture by Barry Flanagan for US$680,000 (S$925,000) to a Chinese resident in Singapore, as well as a sculpture by Yves Dana for US$92,000 to a collector based here. New York gallery Lehmann Maupin sold a painting by David Salle for US$250,000 to a prominent family in Singapore.

“Art fairs are increasingly becoming touch points on the calendar enabling galleries to maintain existing relationships and to generate new relationships that provide a pipeline for future sales,” said Magnus Renfrew, co-founder of ART SG and the former founding director of Art Basel Hong Kong. “Often, sales are concluded in the weeks and months following the Fair and not solely during the days of the Fair itself.”

FAMILY MATTERS

The ripple effect caused by the mushrooming of family offices in Singapore – which currently numbers around 1,400, according to the Economic Development Board – is another driver behind the uptick in art investment. More than half (59 per cent) of family offices in Asia are based in the city-state.

“One key development in recent times has been our push to incentivise single and multi-family offices to set up shop in Singapore. We have a number of tax benefits in place to encourage the development of such offices in Singapore. These ultra-high-net-worth families and individuals may well have an interest in art collection and investment,” explained Usha Chandradas, co-founder of Plural Art Mag, educator and Nominated Member of Parliament (NMP).

“The so-called ‘blue-chip’ art market has seen growth due to an influx of UHNWIs and family offices, notably from mainland China, most of whom have experience in the market and are bringing their appetite for art to Singapore,” observed Cassi Young, global fine art director of Art Works Group.

She added: “Our advisory service at Art Works has seen a significant increase in volume of experienced collectors contacting us to receive expert guidance on how to build a world-class fine art collection for wealth preservation and generational wealth where the works they collected can be inherited by their family in years to come."

It should come as no surprise that mainland Chinese collectors are fuelling the art boom. The Art Basel and UBS Global Art Market Report 2024 showed that China is now the second-largest global art market, accounting for 19 per cent of sales by value. The US remains top dog with 42 per cent.

HIGH RETURNS ON INVESTMENT

A rising tide floats all boats. Along with the proliferation of family offices, financial advisors have also been advising their high- and ultra-high-net-worth clients to diversify their portfolios, and as an alternative asset class, art has seen a huge leap in terms of income allocation, says The Artling’s Tay.

One reason for this is that in the past decade, passion investments have consistently outperformed traditional assets. As Knight Frank’s Tay explained: “Art grew by a cumulative 105 per cent over the last 10 years, or about 11 per cent in 2023, the highest 12-month growth among the 10 luxury items in the index. Watches returned a cumulative 138 per cent, or a five per cent gain last year, while wine increased 146 per cent, [with a one per cent growth] in 2023.

“In comparison, the increase in Singapore’s Consumer Price Index (CPI) over the past 10 years from 2014 to 2023 was about 14.2 per cent. These investments of passion outpaced inflation over the long-term, even with the higher-than-normal inflation in recent years. These alternative investments have been growing in popularity as Singapore remains on the path of steadily increasing affluence.”

Another reason: Unlike traditional asset classes like financial instruments, art can be enjoyed while still retaining its value, so long as it’s displayed in the right conditions.

NOT WEALTH MANAGEMENT BUT ART MANAGEMENT

The flurry of activity in the local art economy over the last few years inspired prominent art collector and consultant Ning Chong to set up Family Office For Art (FOFA) in 2021, an advisory firm that helps individuals, families and institutions manage their art collections. Chong herself has around 20 pieces in her collection, while her family’s collection numbers more than 300 works. The first of its kind in Singapore, the firm offers three broad types of services: Collection management, condition checking, and estate planning.

Collection management involves taking an inventory of all the art in a collection. Condition checking entails assessing the existing condition of the artworks and advising clients on whether or not they need to perform conservation and restoration work to preserve the value. Finally, estate planning encompasses an audit of the entire collection. This could be anything from providing an updated appraisal of the artworks, to generating a valuation report for insurance companies, in cases where clients intend to purchase insurance policies that include their art.

“A lot of what I do is educational. I tell my clients that they have to start putting things in order, especially for art, because not every next-generation appreciates what you’ve bought,” said Chong, who holds a Masters in Modern and Contemporary Art from Christie’s Education London and is a patron of the National Gallery Singapore and Singapore Art Museum. “And you don’t want to be in a situation where you don’t know what to do, or have not been left with instructions on what to do. It’s not like shares, right? You can’t liquidate art as easily.”

CULTURAL CAPITAL

Beyond capital appreciation or returns on investment, collectors have been flocking to art for a variety of other reasons.

“We have observed client motivations change to be more holistic, with art as an investment being just one of the many reasons why they collect,” noted Art Works Group’s Young. “More Singaporeans are seeing the cultural benefits of building world-class art collections from a diverse group of artists. Singaporeans are looking to the wider international market and wanting to acquire museum-quality artworks from major international galleries.”

For FOFA’s Chong, it’s a sign of a maturing society. “I think if you're a very successful working professional at some point, you’d be looking to be connected to your cultural roots, your heritage, and supporting artists is one way of doing so. And this may sound a bit crass but after you have your nice home and your car and your watches, the next thing is probably art.

“It's the start of developing relationships with artists, galleries, like-minded collectors, or seeking advice from older collectors. You'll also get to build a relationship with the museums. It's a nice community. And if I dare say, showcasing your art, sharing your aesthetic sensibilities, is also a form of social currency. It really shows off your taste, your preferences. It’s part of a society that's maturing and becoming more sophisticated.”

Singapore, ART SG’s Renfrew believes, is going to be increasingly relevant in the international art world. “Momentum is building and there are incredible opportunities to engage with art year-round through the quality of the museums and galleries, and an open and welcoming cultural community,” he says.

A NEW GENERATION

Many people in the industry have noticed the emergence of a new generation of art collectors.

“We anticipate that more and more young buyers will come into the fold in the coming years, as arts education improves and interest in visual art grows,” noted The Artling’s Tay.

These Millennial collectors are not only purchasing art for the first time, but they are doing so with the long-term view of building world-class collections that can grow over time, in both cultural and financial value.

“This is a global trend but young Singaporeans are showing a leading initiative in this movement,” observed Art Works Group’s Young. “This, paired with a great generational wealth transfer, allows those who are passionate about art to profit from art collecting and investing.”

NMP Chandradas stresses the importance of growing the younger collector base, as patronage is an important part of the creative economy. Acquiring and collecting art helps to fuel the development of artists’ practices, and is an investment into the cultural development of any society.

“Many young professionals, for example, have the disposable income to collect art,” she said. “As I’ve mentioned previously in Parliament, if you can afford a designer handbag, you can certainly afford a piece of art. The question is then, how do we reach out to and educate newer would-be collectors with sufficient disposable income, to encourage them to invest in art?”

In the future, Chandradas hopes to see more private collectors’ museums being set up and made open to the public, to educate the community about the value and joy of art and art acquisitions.

One example is The Culture Story in Thye Hong Centre on Leng Kee Road, which was set up by FOFA’s Chong and her father, Chong Huai Seng, in 2017. The pair use their private art space as a platform to hold exhibitions and talks, in the hopes of fostering networking and promoting art connoisseurship.

In the end, many of those operating in the arts space feel that art should not be viewed merely as a financial instrument, but as a tangible asset class that transcends financial metrics, embodying cultural heritage and aesthetic value for generations to come.

“By taking a one-dimensional perspective on art, one actually loses sight of what makes an artwork inspirational, provocative, and able to endure the test of time – which ironically reduces a collector’s potential to spot and uncover true gems,” said Shuyin Yang, fair director of ART SG.

“While art investments can certainly be lucrative, the bigger investment that you make when you buy a piece of art, is your contribution to the development of the creative soul of your community,” said NMP Chandradas.

“Ultimately, art collecting is a passion and most of the collectors I know have certainly had works go up in value, but often they hold onto the works because they can't bear to part with them anyway,” said The Artling’s Tay.