The desire to buy a trophy home and decorate it with world-class artwork is not recent. Both, if purchased wisely, combine a rewarding lifestyle with a profitable investment. According to new data from Christie's International Real Estate, the symmetry in demand for these two asset classes is so similar that rates for each have increased by more than 20% in the last year. Emerging-market buyers are joining forces with buyers in more mature markets to keep fine art and luxury homes prices high.
Luxury Defined: An Insight into the Luxury Residential Property Market, a study published by Christie's International Real Estate (CIRE) in April 2014, reveals that luxury real estate has a far stronger association with the elite end of the fine art market than it does with the general housing market.
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"Like luxury real estate, the top end of the fine art market has seen a revival in recent years as the world's wealthiest have turned to investments that deliver individuality, craftsmanship, and experiential luxury," says Joachim Wrang-Widen, Senior VP at CIRE. "Both markets are assets of passion and lifestyle, with small stock and strong demand. The provenance and nature of a coveted home, like a masterwork of art, drives prices at the very top of the market."
Christie's, the only real estate network operated entirely by a fine art auction house, contrasted the three-year compound growth trend in fine art sales and residential sales of assets worth more than $1 million to the overall growth rate in house prices.
Luxury home sales increased by 24%, while fine art sales increased by 22%, according to these estimates. In contrast, general housing sales in the US, UK, Canada, and Australia increased by 6% over the same timeframe, while the S&P/Case-Shiller 10-City US House Price Index increased by 3%.
The Art Market in the World
Last year's global art sales totaled €47.42 billion, making it the second-best year on record. According to data from the European Fine Art Foundation's TEFAF Art Market Study, this amount was only slightly lower than the €48.07 billion highs set in 2007.
The two most expensive works ever sold at auction were Francis Bacon's triptych "Three Studies of Lucian Freud," which sold for $142.4 million in New York in November, going to an anonymous buyer for $50 million more than the pre-auction estimate, and Edvard Munch's "The Scream," which sold for $119.9 million in May.
The Luxury Real Estate Market
According to Bonnie Stone Sellers, CEO of CIRE, property sales in the top price brackets have continued to increase, owing to restricted inventory, low interest rates, and pent-up demand. "If 2012 was the year when the top end of the luxury market came back to life, 2013 was the year when the majority of the luxury market thrived," she says.
With 70% of high net worth individuals investing directly in cities, international buyers demonstrated their commitment to buying in urban areas in particular. This pattern was established in PwC and The Urban Land Institute's Emerging Trends in Real Estate 2014 study, which stated that 61% of millionaires live in cities and prefer a home in a "walkable, urban environment." According to Christie's report, the annual unweighted average growth rate in London, Los Angeles, New York, Paris, and San Francisco is 31%.
Newcomers to the market The Stock Exchange
New York, according to art market data company Artprice, is the "epicentre" of high-end art purchases, hosting 39 of the top 50 auctions last year. The United States has dominated the art industry for the past two decades, and while it still holds a 39 percent share of the market in terms of revenue, China now accounts for nearly a quarter of all art sales. According to TEFAF, despite the fact that Chinese buyers' meteoric rise in the market slowed in 2012, they remain the most important of the newer art markets.
Sales of Old Masters at Christie's and Sotheby's increased by 56.5 percent in 2012, with emerging markets such as the United Arab Emirates, Mexico, and Brazil joining China in contributing significant numbers of new buyers to the market. Chairman of Sotheby's North and South America, Lisa Dennison.
In their latest World Wealth Report, consulting firm Cap Gemini notes, "Looking forward, the art market, especially at the upper end, is expected to remain high." "Demand outstrips supply not only because masterpieces are rare, but also because their owners are often hesitant to sell due to the difficulty in finding assets with comparable return of characteristics."
That is also true of top-end global land, according to CIRE's Wrang-Widen, which is why he believes luxury residential real estate, which is seen as a "safe haven" investment, has especially strong growth potential.