Fractional Art Ownership: What are the Risks?
Investing in art has been a long-standing practice for many wealthy individuals as it offers the opportunity to not only enjoy the beauty of the artwork but also make a significant profit. However, for those who cannot afford to buy a whole piece of art, fractional ownership has emerged as an alternative. Fractional ownership, also known as shared ownership or co-ownership, involves owning a portion of an artwork, typically through a syndicate or a company, the method originated in China around 2009 but then fell out of popularity.
It wasn’t for a number of years that the trend re-emerged, when, in 2018 a number of fractional ownership schemes became popularised. While this may seem like an attractive option, it comes with several disadvantages. In this blog post, we will discuss the drawbacks of investing in fractional ownership art.
Lack of control:
When you invest in fractional ownership art, you are not the sole owner of the artwork, and therefore, you have little control over it. You may not have a say in how the artwork is displayed or where it is stored. This lack of control can be frustrating for some investors, particularly those who are passionate about art.
Fractional ownership art is illiquid, which means it cannot be easily sold. Unlike traditional stocks and bonds, fractional ownership art cannot be bought and sold on a public exchange, making it difficult to find a buyer when you want to sell your share. Furthermore, the process of selling a share of an artwork can be complicated and time-consuming, which may discourage potential buyers.
Fractional ownership art comes with high fees, which can eat into your potential profits. Fees can include management fees, insurance, storage, and maintenance costs. These fees can be significant, particularly for smaller investments, making it difficult to generate a decent return on your investment.
Risk of fraud:
Fractional ownership art is a relatively new investment option, and therefore, there is a risk of fraud. Investors may not have the expertise to evaluate the authenticity of the artwork, leaving them vulnerable to unscrupulous individuals who may sell fraudulent pieces.
Limited appreciation potential:
While investing in art can be lucrative, fractional ownership of art may not appreciate in value as much as a whole piece of art. This is because the value of an artwork is often based on its uniqueness and rarity, and a fractional ownership share may not hold the same value as a whole piece.
Fortunately, the incorporation of many of these fractional ownership art investment schemes is leading to an increased demand for art as a whole which in turn drives the prices of artworks upwards.
In conclusion, investing in fractional ownership art can be an attractive option for those who cannot afford to buy a whole piece of art. However, it comes with several disadvantages, including lack of control, limited liquidity, high fees, risk of fraud, and limited appreciation potential. As with any investment, it is important to weigh the pros and cons before committing your money to fractional ownership art. There is an article in The Art Newspaper here that covers this topic in more detail. You can also see our article here about the benefits of investing in art
Trust De Pointe to guide you through the complexities of the art investment market. Contact us today to learn more about our services and how we can help you achieve your investment objectives.