Author’s note: A general definition was written for this term. If a definition in accordance with IFRS and IAS 40 is desired, this version must be revised.
Properties can be looked at from different perspectives. The performance-related perspective includes the aspects of the planning, development and operation of properties and their marketing. The user perspective looks at property as a necessary resource in corporate performance processes or as a public interest in providing private households. The owner perspective sees property as an investment opportunity to maximise the capital employed, taking into account risk and liquidity.1
The distinction is based on the individual goals of an investor.
Investment property – properties that are acquired and held as an investment – meet the requirements of the owner perspective above. The motivation to invest in investment property is clearly to generate an attractive return while taking into account risk and liquidity. The goal of maximising the capital employed can be pursued by different strategies. Firstly, there is generating a return by renting or leasing the investment property (buy and hold strategy). Secondly, property can be acquired in order to sell it at a later date for more than its cost value. Such capital gains can be achieved through capital value-enhancing measures such as modernisation, revitalisation, conversion or through active asset management.2 Even a positive development in the market environment can contribute significantly to the increased value of a property.
All types of use can satisfy the objectives of investment property. Usually, however, residential and commercial properties (e.g. office, retail, logistics, business property) are acquired for these purposes. Special-purpose properties such as hotels, cinemas and leisure parks are also frequently purchased in order to generate a return.
By contrast, owner-occupied property – used for residential purposes or to support a company’s core business – is not considered investment property. Although they also generate a benefit for the owner, buyer’s motivation is not primarily maximising the capital employment, but rather efficient use (user perspective). Instead, it is assumed that the respective property was acquired for operational reasons or in order to maximise the quality of living of an individual consumer.3