7th April 2014
David Porter, Operations Manager for Lea and Sanderman, discusses wine investing and a big challenge for Bordeaux this week as the industry and media try the 2013 vintage.
Investing in wine is not a new idea, for decades people in the know have bought wine year on year for their cellars and then as values rise got to the point where they can sell some back to the market, recouping their profit – purely for re-investment in drinking stocks. In a perfect world and with some knowledge or sage advice, this process could mean that your wine ‘hobby’ sustained itself.
However, over the last 10 or so years this modest investment practice has become more and more difficult – as more speculative investors were drawn into an ever more dynamic wine market.
No longer the preserve of savvy drinkers – wine investment had become big business. As Lehman’s collapsed in 2008 and traditional investment opportunities dried up with the downturn in markets – people began to see the potential promise of investing in wine.
Classed as a ‘wasting chattel’ there is no Capital Gains Tax to be paid on wine investment. The inheritance tax position was also not crystal clear and the potential growth seemed to be huge, thanks to very bullish emerging markets driving up wine prices and two highly acclaimed vintages in Bordeaux – in 2009 and 2010, suddenly there was a rush on.
With a rapid growth in interest in certain Bordeaux Chateaux from the emerging markets, in particular China; prices started to soar. Centered around Bordeaux’s top estates, nothing short of a frenzy started. Demand is finite for these wines and with an apparently limitless demand for certain labels, prices spiralled. Chateau Lafite, one of Bordeaux’s elite ‘Premier Cru’ wines, is possibly the best example of this. When I first started in the wine trade the 2000 vintage was released. A great year. This was priced at less than £2,000 for a case of 12 bottles. In October 2010 a case of this very wine was sold by Sothebys in Hong Kong for a shade over £45,000. Not a bad return! In the same auction 3 single bottles of the 1869 vintage Chateau Lafite sold for $230,000 each. In the Spring of 2010 – the 2009 vintage Chateau Lafite was released to the market at £12,000 per case – and people piled in. 2010 was a similar story.
And then the bubble burst – the Chinese market cooled right down – even in this ever expanding land of promise – appetites diminished for Lafite, particularly at such high prices. This was in part due to the change in laws in China for the permitted spend by Party Officials on gifts, which is where a lot of Chateau Lafite apparently ended up – but also a maturing understanding of the market – they were driving the prices – and they simply did not need to be paying such high prices. £12,000 for the 2009 vintage would now only recoup you £7,000. The ‘upwards only’ trend stopped with a jolt and the market is now correcting. A process which is not being helped by some poor vintages in Bordeaux and unrealistic pricing still being asked by the producers. The wine trade and journalists have descended this week on Bordeaux to assess the 2013 Vintage. As drinkers and investors alike we can only hope for a serious drop in prices form the Chateau owners – to try and regenerate some interest in what has become an unattractive proposition for wine-buyers. This is a test of their understanding and long-term view – let’s hope they get it right.