Modern furniture: Are you sitting on a fortune?

In the midst of the London Design Festival in September, Tom Dixon filled Trafalgar Square with 500 polystyrene chairs. They looked a bit like take-away burger boxes and this was intentional. The chairs were designed to be taken away. They were free. But only three months later, many of those who attended the "Great Chair Grab" got wise to the fact that they might (literally) be sitting on a nice bit of cash.

The chairs went on eBay for around £20. Which isn't much in the designer furniture market. But it's an awful lot for a freebie polystyrene chair - one of 500. And disciples of Dixon are still happily keying their card details into PayPal - the price is still rising and I wouldn't be surprised if those who invested a couple of tenners might see their money double, treble or escalate even further in time.

As Jeremy Morrison, director of decorative arts and design at Sotheby's, explains: "The designer furniture market has really taken off in the past two years. Lead by the New York collectors market, it's beginning to blur with the contemporary art market. Designers' prototypes, limited editions and so on are beginning to make tens to hundreds of thousands of pounds. People like Ron Arad, Marc Newson and Zaha Hadid produce 'design art' pieces of furniture that are essentially treated like contemporary art. Five years ago, pieces by the Australian designer Newson were making £20,000.

He was a craftsman, making pieces in limited numbers and almost struggling to sell things. Now the same item could cost you £400,000. One of his Lockheed Loungers recently went for $968,000 (£492,000) in New York."

Its an odd idea, such huge prices paid out for nearly new loungers. And, at $968,000, this second-hand lounger is too expensive to fulfil its function and be lounged on. As Morrison says: "People are happy to put sofas or dressing tables on plinths now - to treat them as sculpture."

Furniture has traditionally had to "earn" value by sitting around and accruing character until it becomes an antique, or, in the case of 20th- century "pieces" like Arne Jacobsen's Seven Chair, they can jump the queue by becoming "iconic". Even being fast-tracked as iconic used to take a couple of decades. But as culture seems to speed up, we're making decisions about what styles define our eras much faster. Judith Miller, author of the Antiques Price Guide 2007, says that "furniture is ending up under the gavel much sooner after production than when I first began attending auctions".

Flicking through Miller's book, I find a sizeable section on modern designers smuggled in amid the Wedgwood and the Chippendale. How would Miller advise a potential investor go about snapping up a bargain? She laughs. "You can never know for certain that something will go up in value. The design world is very fickle. How much can one pay for an Eames chair? They go up to a certain price and then it's almost as if, globally, buyers draw in their breath and decide 'that's an awful lot of money for a chair'. Trends are unpredictable. An interior designer like Jeffrey Bilhuber will suddenly use a chunky bit of oak in a Manhattan loft and the world cries, 'Ohh! Oak!' and forgets other woods."

Miller is very keen on wood though. Good wood, good materials. "If a piece is beautifully made from beautiful materials, it's probably going to hold its value," she says. Miller is a particular fan of the exquisite craftsmanship of Senior & Carmichael, whose one-off commission creations for the likes of the Marquess of Bath and the Sir John Soane's Museum will probably be just as desirable centuries from now.

But when it comes to the world of mass production and modern materials, investors are on dodgier territory. "Anything Philippe Starck made for Alessi, for example, won't go anywhere," warns Miller. So put your lemon squeezers down. And hang fire with the foam furniture, too - foam has a fairly limited life span. And lots of the 1960s plastic and fibreglass stuff - although cool - might have lost its sheen and strength.

So what about the gambler with a few hundred quid to play with and a stack of Wallpaper and Icon magazines in the back bedroom? Could somebody like that just try pottering round the design shows and taking a punt on an exciting new name? The experts say the odds are slim of finding the "new" Newson. But Rabih Hage, who runs a gallery in South London, says there's fun to be had at all levels. "I began my gallery around just one sofa made of nickels by the American designer Johnny Swing. I bought it for $12,000 not so many years ago and now it's worth $61,000. I work with designers to develop what can only be described as 'collectibles'. We hosted Paul Cocksedge's first solo show of 77 lamps priced between £495 and £1,770, and they'll definitely go up in value. Once there has been a good show or book devoted to a designer, the price tends to go up."

Who's buying these "collectibles"? "People mainly aged between 30 to 55," says Hage. "People who are quite confident in their own taste and buy instinctively." He says the trend began in the mid 1990s when "people were intimidated by the art world but felt they had a right to their own opinions about design".

I suppose there are lots of us in that category. The experts may be able to demolish our interpretations of the painters and sculptors - but we know what we like to sit in. And sometimes it's polystyrene.

How to spot a modern masterpiece

* Don't buy mass-produced work. Only limited editions and prototypes will stand a chance of making a fast return. Also look out for pieces connected with iconic buildings or events - the ocean liner, the ground-breaking hotel, the Olympics.

* "Look for that designer," says Morrison, "who is doing new things with a new material. Look for the innovator, the person everybody else will follow."

* Think about how the materials will age, and what conditions they will require to be kept at their best. Hard woods will acquire a rich patina with use, but white plastic from the 1960s will loose its sci-fi Barbarella appeal if its scuffed and marked with ball-point pen.

* Look what the museums are buying. If the V&A have an order in, then you're on to a good thing.

* Study interior design magazines. Not only do such magazines identify who's currently cool, but they'll be thumbed by interior designers looking for retro chic in 20 years' time, when you're looking to sell.

* Don't buy at the major metropolitan auction houses if you're looking to snap up a bargain. Go out to the sticks where, as Miller says, "they don't give a toss if it's an Eames or an Arad".

* Only buy what you like. Trust your instinct.

* Avoid anything restored, and make sure handles and any ornament or gilding are original.

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