ART has been making waves in the media owing to the high prices buyers have been paying to get their hands on the classics, but art may not be a sure-fire investment asset.

According to artnetmarketing.com, the top-selling artists in 2012 were Andy Warhol, whose works fetched $381-million, Pablo Picasso ($334-million) and Gerhard Richter ($299-million).

The demand for Picasso' s work has remained consistently high in recent years, according to the website, outperforming the S&P500 index since 2002.

Locally the highest price ever paid at auction was for an Irma Stern painting, Two Arabs, which sold for R21-million, according to Stephan Welz, managing director at auctioneers Strauss Art.

The most valuable artwork produced in South Africa is The Arab Priest, also by Stern, which sold for R30-million.

According to the Citadel art index, the final quarter of 2012 showed a surge in prices. Until the end of October, the index had risen by 10.5% quarter on quarter, rising to 13% for the year.

But Piet Viljoen, chairman of asset manager RE:CM, cautioned that various factors prevented art from becoming a fully fledged asset class with investment potential.

"Art can be an asset, but, in my opinion, it's not. One of the key criteria in determining whether something's an asset is whether its price is set efficiently or not.

"For anything to be priced efficiently, we need three things. Firstly, there has to be an effective aggregation mechanism that will take all opinions and aggregate them into a price.

"A stock market fulfils this function for equities. The art market is dominated by insiders, a small group of people who set the price.

"This points to the second problem: a lack of liquidity in the art market. Some paintings are sold once every 20 years.

"Lastly, the higher the price of a piece, the more valuable it is. This is completely contrary to the normal pricing of assets, where value determines price."

According to Viljoen, some other pitfalls of buying art as an asset class have to do with costs associated with owning art - "things like storage costs, insurance costs, transaction costs and also various taxes".

"These frictional costs work hard every day to reduce the returns available from owning art as an investment. In the stock market, you don't pay your stockbroker 20% of value to sell, as you would selling an artwork at an auction house, and you don't pay 10% of its value as a 'buyer's premium'."

Welz agreed that art should not be considered an asset class, but owning art could still be lucrative.

"Works of art are better described as a store of wealth, rather than an investment asset. They do not pay dividends or interest and, in fact, they cost money to keep. But, hopefully, the capital gain in the end, which is tax free in South Africa, handsomely compensates for this.

"Experience has proved that, in many cases, the return on a work of art has exceeded that of any other asset class.

"The local art market is particularly strong for superior works of art. The health of the art market is subject to the same influencing factors as any other market and is very much subject to the availability of money and confidence."

Viljoen said art fulfilled an important role in society and should not be thought of in strictly monetary terms.

"Art allows outsiders who are not part of the power structures in finance or politics to hold a mirror to these structures and the broader society."

*This article was first published in Sunday Times: Money & Careers