Investment property

Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both, rather than for:

  1. use in the production or supply of goods or services or for administrative purposes; or
  2. sale in the ordinary course of business.

Owner-occupied property is property held (by the owner or by the lessee as a right-of-use asset) for use in the production or supply of goods or services or for administrative purposes.

Investment property is held to earn rentals or for capital appreciation or both.  Therefore, an investment property generates cash flows largely independently of the other assets held by an entity. This distinguishes investment property from owner-occupied property. The production or supply of goods or services (or the use of property for administrative purposes) generates cash flows that are attributable not only to property, but also to other assets used in the production or supply process. IAS 16 applies to owned owner-occupied property and IFRS 16 applies to owner-occupied property held by a lessee as a right-of-use asset.

Property investment

The following are examples of investment property:

  1. land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.
  2. land held for a currently undetermined future use. (If an entity has not determined that it will use the land as owner-occupied property or for short-term sale in the ordinary course of business, the land is regarded as
    held for capital appreciation.
  3. a building owned by the entity (or a right-of-use asset relating to a building held by the entity) and leased out under one or more operating leases.
  4. a building that is vacant but is held to be leased out under one or more operating leases.
  5. property that is being constructed or developed for future use as investment property.

IFRS Reference


Relevant disclosures or references

IAS 40 75(a)

Measuring investment property at fair value

Investment properties, principally office buildings, are held for long-term rental yields and are not occupied by the group. They are carried at fair value. Changes in fair values are presented in profit or loss as part of other income.

IFRS 13 91(a),

IFRS 13 93(d),

IAS 16 77(a),

IAS 40 75(e)

Valuation techniques used to determine level 2 and level 3 fair values

The group obtains independent valuations for its investment properties at least annually and for its freehold land and buildings related to manufacturing sites (classified as property, plant and equipment) at least every three years.

At the end of each reporting period, the directors update their assessment of the fair value of each property, taking into account the most recent independent valuations. The directors determine a property’s value within a range of reasonable fair value estimates.

The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available the directors consider information from a variety of sources including:

  • current prices in an active market for properties of a different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences
  • discounted cash flow projections based on reliable estimates of future cash flows
  • capitalised income projections based on a property’s estimated net market income, and a capitalisation rate derived from an analysis of market evidence.

All resulting fair value estimates for properties are included in level 3 except for land held for resale. The level 2 fair value of land held for resale has been derived using the sales comparison approach. The key inputs under this approach are the price per square metre from current year sales of comparable lots of land in the area (location and size).

IAS 40 75(e),

IAS 16 77(a),(b)

Valuation processes

The group engages external, independent and qualified valuers to determine the fair value of the group’s investment properties at the end of every financial year, and for other land and buildings at least every three years. As at 31 December 2019, the fair values of the investment properties have been determined by ABC Property Surveyors Limited. A directors’ valuation has been performed for the land and buildings classified as property, plant and equipment as at 31 December 2019. The last independent valuation of these land and buildings was performed as at 31 December 2018.

The main level 3 inputs used by the group are derived and evaluated as follows:

  • Leased office buildings – discount rates, terminal yields, expected vacancy rates and rental growth rates are estimated by ABC Property Surveyors Limited or management based on comparable transactions and industry data.
  • Office building under redevelopment – costs to completion and profit margin are estimated by ABC Property Surveyors Limited based on market conditions as at 31 December 2019. The estimates are consistent with the budgets developed internally by the group based on management’s experience and knowledge of market conditions.

Changes in level 2 and level 3 fair values are analysed at each reporting date during the half-yearly valuation discussion between the CFO, AC and the valuation team. As part of this discussion, the team presents a report that explains the reason for the fair value movements

IAS 40 75(h)

Repairs and maintenance: investment property

Contractual obligations for future repairs and maintenance – not recognised as a liability need to be disclosed as commitments. These are contractual obligations to purchase, construct or develop investment property or for repairs, maintenance or enhancements.

IAS 40 75(g)

Non-current assets pledged as security

Investment properties pledged as security by the group need to be disclosed.

IAS 40 75(c)

Classification as investment property is difficult

Disclose criteria used to distinguish investment property from owner-occupied property and property held for sale in the ordinary course of business.

IAS 40 77

Adjustments made to valuations

Disclose reconciliation between valuation obtained and the adjusted valuation.

IAS 40 75(f)

Sale of investment property between pools of assets measured using different methods (IAS 40 32C)

Disclose cumulative change in fair value recognised in profit or loss.

IFRS 16 90(b)

Contingent rents recognised as income in the period

Disclose amounts where applicable.

IAS 40 75(b)

Operating leases classified as investment property

Explain circumstances of classification as investment property and whether the fair value model is applied.

IAS 40 78

Investment property cannot be reliably measured at fair value on a continuing basis

Disclose amounts separately and provide additional information about the property.

IAS 40 79

Entity has elected to use the cost model for measuring its investment property

Disclose additional information such as depreciation methods, useful lives etc.

What to buy

  • Attractive features – Look for investment properties that will appeal to as many people as possible, like a second bathroom, lock up garage or nearby shops, schools and transport.
  • Wide appeal – Find a property that will attract more than one segment of the rental market such as singles, couples, young families or retirees.
  • Low maintenance – Keeping costs down is important, older homes or those with features such as a pool or extensive landscaping may cost more to maintain.
  • Property type – Units can be easier to maintain than houses, although you will have to pay body corporate fees.
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Investment property

Investment property

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