Shafaqna English– The journal of the Research in International Business and Finance has published the paper “The validity of Islamic Art as an Investment” written by William Mcquillan and Brian Lucey in 2016.
According to Shafaqna, this paper investigates the validity of Islamic Art as an investment product. Therefore, this paper will investigate the overall return over the last ten years, how certain key characteristics can influence this return, the market for Islamic art, and the factors and volatility affecting this market. To this end, a hedonic regression analysis is applied to the auction sales of Islamic art from 1998 to 2007. The definition of Islamic art, the market for Islamic art, future of the market, and the findings are mentioned below:
- Islamic Art encompasses the arts produced from the 7th century onwards by people who inhabited the territory that was lived in by culturally predominant Islamic populations. It “refers not only to the art made for Islamic practices and settings but also the art made by and for people who lived or live in lands where the majority were Muslims” (Bloom & Blair, 1997). Unlike many other terms or periods of art, like ‘Renaissance’, ‘Baroque’, ‘Christian’ or ‘Italian’, Islamic art refers to no specific era, genre or method of art. The works produced can contain varied fields such as painting, sculpture, embroidery, calligraphy, and ceramics. While the value placed on the Arabic script and its representation in Islamic art gives this class of art a unity of style, the multitude of regions, countries and cultures that have influenced it has resulted in a diverse and rich selection of art to collect.
- Like the equity property and debt markets, the art market has suppliers, buyers, indexes, varying liquidity, various asset types, rules, regulations, taxes and risks, but it also has several unique factors. Because of special features such as resaleability and artists’ reputation, the art market has been characterized by a hierarchy of submarkets.
- Based on Gerard-Varet (1995) and Robertson (2008) on the art market, the Islamic art market can be divided into four submakets: Primary Market; Secondary Alpha Market; Secondary Beta Market; Tertiary Market.
- The primary market is made up of contemporary artists selling their works directly to the buyers. This is usually the lower price range of most art markets and has many artists competing against each other for recognition. Nearly all artists will never move past this market to sell their work in the larger markets. As most of the Islamic artwork is consisted of antiquities, this is only a small subset of the contemporary portion of the market.
- The Secondary alpha market is a limited number of art dealers who resell artworks in their galleries. The Arab Art Gallery and the Green Line, who specialize in antiques and contemporary art respectively, are both examples of this in the Islamic market.
- The Secondary beta market is consisted of art fairs. These are totally quite large events containing a combination of several galleries and artists selling their works in one location. They are usually based on one area or genre of art, for instance the Frieze ‘contemporary art’ fair in London, the Kunst Messe ‘fine art and antique’ fair in Germany, or the PHOTO ‘photographic’ fair in San Francisco. Art fairs allow galleries to display their best works and improve their reputation and image among collectors and competitors. While there are no large fairs that are solely devoted to Islamic art, it can still be found in many contemporary and antique fairs across the world, such as the annual Art Dubai, in the United Arab Emirates.
- The Tertiary market is made up of the many auction houses, such as Bonhams, Christie’s and Sotheby’s, who sell art works for the benefit of others directly to the buyers. Auctions are the visible face of the art trade, and set “benchmarks” in terms of price and genre fads. These artworks tend to be older antiquities or the more valuable of the contemporary and modern artworks. The Tertiary is best of all four markets regarding obtaining information, whether it be current values of works, the varieties available, demand of buyers or the quality that should be expected. It makes prices transparent by enabling buyers and sellers to refer to past prices of artworks, as well as limiting arbitrage across geographic regions.
- In most art markets, the tertiary markets are just a small proportion of the sales of all four sub-markets and their sales only usually show price fluctuations of art in demand, so that an upward trend is often present (Goetzman, 1995). This is not the case for the Islamic art market, which is mostly dominated by the tertiary market. This is because of the market’s large focus on antiquities. While contemporary Arab artworks are one of the fastest growing areas of Islamic art, it is still just a small portion of the overall market globally and consequently, the sales are still concentrated on selling in the tertiary markets.
- One unique aspect about Islamic art is that London, a non-Islamic country, has become the center of the global Islamic art market. This is primarily due to the instability that Islamic world has experienced over the last fifty years, particularly the Middle Eastern region.
- Historically, Islamic investors did not spend their disposable income on art, choosing instead easily transportable items like jewelry, precious stones, and metals. The history of Islamic culture is replete with political strife, religious persecution, economic volatility, mass movements of populations owing to wars, and general instability. These, accompanied with the nomadic traditions of the Middle East are several of the main reasons for purchasing such portable wealth (Frank 2007). As the Islamic community settled in England both economically and residentially, they began to invest in other items such as equities, debt and art. Although the Middle East still has a high percentage of luxury income spent on jewelry in comparison to other regions, this figure is dropping and their percentage spent on art has increased considerably.
- The buyers of Islamic art range from private actors such as individual collectors, art funds, corporate collections, private investors to public actors such as Governments, museums and art foundations.
- Governments allocating budgets for art spending and large museums are still quite new to the Islamic world and are just beginning to attain recognition.
- Until now, the only city to obtain a wide selection of Islamic art has been London, but the United Arab Emirates (UAE) is emerging as a new collector base in the Middle East. Traditionally, Sharjah with more than twenty-four museums, a biannual art fair and a history of commissioning art has led the rest in terms of art, but this is fast changing (Robson, 2007). Over the last ten years, Dubai has not only silenced sceptics by becoming a top global financial center but has also become one of the fastest growing art hubs anywhere in the world. Since 2006 the world’s three largest auction houses, Chrisites, Bonhams and Sothebys, have all opened there, each achieving record sales.
- Dubai’s Emirati neighbor, Abu Dhabi has equally large art ambitions. Abu Dhabi, which has almost ten percent of the world’s oil reserves, plans to spend $29 billion on building Saadiyat Island. They want this island to become the new cultural, financial and art center for the Middle East. With so much money being pumped into it and both the Louvre and Guggenheim, two of the world’s biggest art brands already creating landmark museums there, this aim may be far more realizable than many might think (Kerr, 2007; Chrisafis, 2006).
Source: sciencedirect.com
Note: Shafaqna do not endorse the views expressed in the article