Investment Properties
Real Estate Held for Rental Income or Capital Appreciation
Investment Properties are real estate assets (land or buildings) held by a company to earn rentals, for capital appreciation, or both, rather than for use in production, supply of goods/services, or administrative purposes. Under IFRS (IAS 40), these properties are accounted for separately from owner-occupied property (PP&E), with unique measurement and recognition options.
Definition and Scope
Investment Properties under IAS 40 include:
- Land held for long-term capital appreciation
- Land held for undetermined future use
- Buildings leased out under operating leases
- Buildings vacant but held for future leasing
- Properties under development for future investment use
Excluded: Owner-occupied (PP&E), property for sale in ordinary course (inventory), or under construction for third parties.
US GAAP has no equivalent category—all treated as PP&E under ASC 360.
Accounting Models
IAS 40 offers two models (policy choice, applied consistently):
Fair Value Model (Preferred by many)
- Measured at fair value each period
- Gains/losses recognized in profit or loss
- No depreciation
- Fair value reflects market conditions and highest/best use
Cost Model
- Carried at cost less accumulated depreciation/impairment
- Same as PP&E
- Fair value disclosed in notes
Transfers between categories trigger remeasurement.
Balance Sheet Presentation
Under non-current assets as:
- 'Investment Properties'
- 'Investment Property'
- Fair value model: Single line at fair value
- Cost model: Gross cost less depreciation/impairment
- Separate from owner-occupied PP&E
Footnotes detail model used, valuation method, and rollforward.
Valuation and Changes
- Fair value typically by independent appraisers
- Based on market evidence, discounted cash flows, or capitalized income
- Changes in fair value directly impact profit or loss (fair value model)
- Rental income recognized separately in P&L
Common Industries
- Real estate investment companies (REITs)
- Property developers holding completed assets
- Retail/hospitality groups with leased properties
- Insurance and pension funds
- Companies with surplus real estate
Analytical Implications
Investment properties affect analysis by:
- Introducing earnings volatility (fair value changes)
- Reflecting real estate market exposure
- No depreciation charge (fair value model boosts reported profits)
- Higher asset values vs. cost model peers
- NAV (net asset value) relevance for property companies
Fair value gains can mask underlying operational performance.
Key Takeaways
Investment Properties are real estate held for rental or appreciation (IAS 40 - IFRS only).
Fair value model: Revalued each period, changes to P&L, no depreciation.
Cost model: Depreciated like PP&E, fair value disclosed.
Separate from owner-occupied property.
Common in real estate-focused companies.
Fair value model introduces volatility but reflects current market value.
Investment Properties
Real Estate Held for Rental Income or Capital Appreciation
Investment Properties are real estate assets (land or buildings) held by a company to earn rentals, for capital appreciation, or both, rather than for use in production, supply of goods/services, or administrative purposes. Under IFRS (IAS 40), these properties are accounted for separately from owner-occupied property (PP&E), with unique measurement and recognition options.
Table of Contents
Definition and Scope
Investment Properties under IAS 40 include:
- Land held for long-term capital appreciation
- Land held for undetermined future use
- Buildings leased out under operating leases
- Buildings vacant but held for future leasing
- Properties under development for future investment use
Excluded: Owner-occupied (PP&E), property for sale in ordinary course (inventory), or under construction for third parties.
US GAAP has no equivalent category—all treated as PP&E under ASC 360.
Accounting Models
IAS 40 offers two models (policy choice, applied consistently):
Fair Value Model (Preferred by many)
- Measured at fair value each period
- Gains/losses recognized in profit or loss
- No depreciation
- Fair value reflects market conditions and highest/best use
Cost Model
- Carried at cost less accumulated depreciation/impairment
- Same as PP&E
- Fair value disclosed in notes
Transfers between categories trigger remeasurement.
Balance Sheet Presentation
Under non-current assets as:
- 'Investment Properties'
- 'Investment Property'
- Fair value model: Single line at fair value
- Cost model: Gross cost less depreciation/impairment
- Separate from owner-occupied PP&E
Footnotes detail model used, valuation method, and rollforward.
Valuation and Changes
- Fair value typically by independent appraisers
- Based on market evidence, discounted cash flows, or capitalized income
- Changes in fair value directly impact profit or loss (fair value model)
- Rental income recognized separately in P&L
Common Industries
- Real estate investment companies (REITs)
- Property developers holding completed assets
- Retail/hospitality groups with leased properties
- Insurance and pension funds
- Companies with surplus real estate
Analytical Implications
Investment properties affect analysis by:
- Introducing earnings volatility (fair value changes)
- Reflecting real estate market exposure
- No depreciation charge (fair value model boosts reported profits)
- Higher asset values vs. cost model peers
- NAV (net asset value) relevance for property companies
Fair value gains can mask underlying operational performance.
Key Takeaways
Investment Properties are real estate held for rental or appreciation (IAS 40 - IFRS only).
Fair value model: Revalued each period, changes to P&L, no depreciation.
Cost model: Depreciated like PP&E, fair value disclosed.
Separate from owner-occupied property.
Common in real estate-focused companies.
Fair value model introduces volatility but reflects current market value.
Related Terms
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