Investment property is defined as land or a building — or part of a building — or both, held by an owner (or by a lessee as a right-of-use asset) to earn rentals, for capital appreciation, or both, rather than for use in the production or supply of goods or services, for administrative purposes, or for sale in the ordinary course of business (IAS 40.5).

Key Examples of Investment Property (IAS 40.8)

• Land held for long-term capital appreciation rather than short-term sale
• Land held for a currently undetermined future use
• A building owned and leased out under one or more operating leases
• A building that is vacant but held to be leased out under an operating lease
• Property being constructed or developed for future use as investment property

• Owner-occupied property (accounted for under IAS 16)
• Property held for sale in the ordinary course of business (IAS 2)
• Property being constructed for third parties (IFRS 15)
• Property leased to another entity under a finance lease

Investment property is initially measured at cost, including transaction costs. This encompasses the purchase price plus any directly attributable expenditures such as professional fees, property transfer taxes, and other transaction costs.

Subsequent Measurement — The Policy Choice (IAS 40.30)

After initial recognition, an entity must choose between two accounting models and apply that policy consistently to all investment property:

1. Fair Value Model (IAS 40.33–55)

• The property is remeasured to fair value at each reporting date
• Gains or losses from changes in fair value are recognised in profit or loss in the period they arise (IAS 40.35)
• No depreciation is charged
• Fair value must reflect market conditions at the reporting date (IFRS 13 principles apply)
• If fair value cannot be reliably determined on a continuing basis, the entity must use the cost model (IAS 40.53)

• Property is measured at cost less accumulated depreciation and any accumulated impairment losses, consistent with IAS 16
• The fair value must still be disclosed in the notes even when the cost model is adopted (IAS 40.79(e))

Transfers to or from investment property are only permitted when there is a change in use, evidenced by specific events (e.g., commencement of owner-occupation, commencement of development for sale). The measurement treatment on transfer depends on the model applied and the category being transferred to or from.

Disclosure Requirements (IAS 40.74–79)

Entities must disclose the accounting model chosen, the criteria used to distinguish investment property from owner-occupied property, the amounts recognised in profit or loss, and — critically — the fair value of the investment property regardless of which model is applied.

Practical Consideration

The fair value model is widely preferred in real estate-intensive industries as it provides more relevant information to users, though it introduces earnings volatility. Entities must ensure fair value is determined by qualified independent valuers using an appropriate valuation technique under IFRS 13.