Investment property refers to real estate held for the purpose of earning rental income, capital appreciation, or both. It is not office buildings or factories used for daily business operations, nor is it residential property intended for sale by real estate developers; rather, it is property or land held specifically for “investment” purposes. For example, a company buying an office building specifically for rental, or an individual purchasing a shop for long-term rental income, both fall under the category of investment property.
The core characteristic of investment property lies in its “holding purpose.” Unlike owner-occupied property, which is the premises for business operations such as factories and employee dormitories, and unlike inventory, which is property or land intended for sale by real estate developers, investment property is an asset held long-term to generate rental income or await appreciation. This purpose determines its unique characteristics in accounting treatment and valuation.
In accounting, investment property typically uses two measurement models: the cost model and the fair value model. The cost model is similar to that of fixed assets, requiring periodic depreciation or amortization while considering impairment. The fair value model, on the other hand, records assets directly at market value without depreciation, but requires periodic fair value assessments, with changes directly recognized in current profit or loss. Companies can choose one model based on their specific circumstances, but once selected, it cannot be changed arbitrarily, ensuring the comparability of accounting information.
Investment properties have relatively low liquidity. Unlike stocks and bonds, which can be quickly bought and sold, real estate transactions are lengthy, costly, and heavily influenced by market supply and demand, policy regulations, and other factors. However, their profitability can be high, with stable rental income and the potential for asset appreciation with long-term holding. However, this also comes with risks—rental income may fluctuate due to the economic environment, property prices may fall due to policy and market changes, and there may even be periods of vacancy with no income.
The conversion and disposal of investment properties also have specific rules. For example, when owner-occupied property is converted to investment property, the carrying amount must be adjusted according to the fair value on the conversion date; similarly, when investment property is converted to owner-occupied property or inventory, it must be remeasured at the fair value on the conversion date. Upon disposal, gains or losses must be recognized in current profit or loss, impacting corporate profits.
For individual investors, investment property is a form of asset allocation. Some prefer residential rentals for stable cash flow; others favor commercial real estate for higher rental returns; still others focus on land, awaiting development and appreciation. Regardless of the form, factors such as capital costs, maintenance expenses, tax policies, and market cycles must be considered.
The value of investment property lies not only in its book figures but also in its long-term profitability and risk control. It is both an important part of a company’s asset portfolio and a choice for personal wealth management. Understanding its definition, characteristics, accounting treatment, and investment logic helps in viewing this asset class more rationally and making more appropriate decisions between “investment” and “self-use.”
