Art market: why is a painting worth US$1 billion?

The global luxury art market is worth billions of dollars annually, transforming fabric canvases and oil paint into financial assets more valuable than many multinational corporations.

The current public sales record belongs to the painting Salvator Mundi, attributed to Leonardo da Vinci, sold at Christie's auction house for US$450 million in 2017. Behind the scenes, however, private transactions and insurance policies from major museums already value historical masterpieces at the US$1 billion mark.

For the general public, investing the equivalent of the GDP (Gross Domestic Product) of a small nation in a single screen defies basic economic rationality. However, this ultra-reserve economy, dominated by billionaires and investment funds, operates under a very strict set of financial and psychological rules.

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The value of a work is not calculated by the cost of its materials, but supported by three rigorous pillars: the absolute scarcity of supply, the history of ownership and capital speculation in tax havens.

The golden rule: absolute scarcity
The first factor that supports these high values is the mathematical finiteness of supply. Traditional luxury goods, such as state-of-the-art yachts, private jets or hypercars, can be ordered and reproduced by the industry as demand increases.

An original painting, on the other hand, is an irreplicable asset. When a first-rate historical artist passes away (like Vincent van Gogh, Pablo Picasso or Jean-Michel Basquiat, for example), the production of that asset irreversibly drops to zero.

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In this scenario of frozen supply, the basic law of the market collapses. The number of billionaires with immediate liquidity grows every decade, but the volume of masterpieces available for purchase is constantly decreasing, as many pieces are donated to public institutions and leave the commercial circuit. This rush of excess capital after scarce products makes these works extremely expensive.

The weight of provenance
In the auction market, the work's ownership history (technically called "provenance") dictates the base price of the lot.

A painting once owned by European monarchs, industrial tycoons or respected foundations carries a built-in financial premium. The origin acts as the birth certificate and the certificate of suitability of the piece on the market.

In addition to status, this uninterrupted curriculum, from the painter's studio to the present day, is the main guarantee against counterfeits, the biggest financial risk in the sector. Screens with impeccable documentation offer legal security to the institutional buyer. In practice, the investor does not just acquire the painted image, but buys its insertion in the historical timeline of that creation.

Art as a financial asset and asset protection
Behind the scenes at large auction houses, luxury art operates as a strategic asset protection tool. Works signed by historical masters receive the status of blue-chip assets and enter investors' portfolios as highly secure stores of value.

In practice, these screens circumvent the instability of the common financial market. While currencies lose purchasing power to inflation and stocks suffer from global economic shocks, paintings guarantee the preservation and multiplication of fortunes in the long term.

A significant portion of these billion-dollar canvases do not even decorate their buyers' properties. They are sent directly to "Freeports", which are maximum security logistics complexes located in tax havens, such as Geneva, Switzerland.

In these warehouses, paintings can be purchased, resold and stored indefinitely without incurring government taxes or customs duties.

The consensus that creates value
A work of art does not generate accounting dividends, does not produce commercial crops and does not collect rent.

Sustaining its market value strictly depends on the unbreakable consensus among curatorial institutions, historians, critics and capital holders that that production is brilliant and indispensable.

The art market represents the ultimate degree of collective economic belief. The level of US$ 1 billion for a single screen confirms that investors are willing to anchor incalculable fortunes in what captures, in an exclusive and irreplaceable way, the milestones in the history of humanity.

Supposedly lost Rembrandt painting is auctioned for R$8 million

Source: CNN