Valuation & InvestmentInvestment Property
Synonyms: Income-Producing Property، Rental Property، Investment Real Estate
Last updated: 2026-09-25
Short Definition
Investment property is property (land, a building or part of either) held to earn rental income, capital appreciation or both, rather than for the owner's own use in operations or for sale in the ordinary course of business.
Overview
Investment property is property (land, a building or part of either) held to earn rental income, capital appreciation or both, rather than for the owner's own use in operations or for sale in the ordinary course of business.
The definition comes from IAS 40 Investment Property, applied in the Kingdom as part of IFRS. The standard distinguishes investment property from owner-occupied property such as a headquarters or factory (accounted for as property, plant and equipment) and from property held for sale in the ordinary course of business (inventory for developers). The Capital Market Authority required listed companies to use the cost model for several years, then allowed them to choose the fair value or revaluation model for investment property in financial statements for fiscal years beginning in 2022 or later (2023 for investment fund managers), provided each property is valued by at least two valuers holding the TAQEEM fellowship when preparing annual statements and the lower of the two valuations is used.
For tax, the 5% Real Estate Transaction Tax does not depend on the owner's purpose, subject to specific exceptions such as the state bearing the tax on an eligible citizen's first home within set limits, which does not apply to investment property. The difference appears in VAT: residential rent is exempt, while commercial rent is subject to 15% if the landlord is VAT-registered. Let investment property is also subject to Ejar lease rules and the Riyadh rent freeze, and vacant property may attract vacant property fees in covered areas.
⚖️ Legal Basis
The accounting reference is IAS 40 within the IFRS applied in the Kingdom, together with CMA provisions allowing listed companies to use the fair value or revaluation model for investment property for fiscal years beginning in 2022 or later (2023 for investment fund managers), provided the board approves the policy on the audit committee's recommendation, each property is valued by at least two valuers holding the TAQEEM fellowship with the lower value adopted, and differences from the cost model are disclosed. For tax: the Real Estate Transaction Tax Law (Royal Decree M/84 of 19/3/1446H) at 5%, and the VAT Law at 15% on commercial rent.
💡 Practical Example
A listed company owns an office building on King Fahd Road, Riyadh, fully let to third-party tenants, with a book value after depreciation of SAR 60,000,000, while its headquarters is in another building it occupies itself and accounts for as property, plant and equipment. On the audit committee's recommendation, the board adopts the fair value model for the office building. The first valuer estimates SAR 84,000,000 and the second SAR 80,000,000, so the company adopts the lower figure of SAR 80,000,000 and discloses the difference from the cost model in the notes. It charges 15% VAT on the rents because they are commercial.
⚠️ Common Mistakes
- ✗Classifying owner-occupied property or property being developed for sale as investment property.
- ✗Believing listed companies must use fair value; it is a conditional option, and the cost model remains available.
- ✗Using a single valuation when applying fair value in a listed company, whereas the CMA requires two fellowship-holding valuers and the lower value.
- ✗Assuming investment property is exempt from the Real Estate Transaction Tax or that its commercial rent is VAT-exempt.
- ✗Leaving the property vacant for long periods in an area covered by vacant property fees.
🌍 International Differences
IAS 40 applies in most IFRS jurisdictions, including the UAE, and Turkey applies it through its equivalent local standard TMS 40; it allows a choice between fair value and cost models. Under US GAAP, investment property is generally carried at cost. Saudi Arabia adds CMA conditions for listed companies (two fellowship-holding valuers and adoption of the lower value), which are more conservative than the international standard.
FAQs
What is the difference between investment property and owner-occupied property?▾
Investment property is held for rent or capital appreciation, whereas property the entity uses in its operations, such as a headquarters or factory, is accounted for as property, plant and equipment under a different standard.
Can Saudi listed companies measure investment property at fair value?▾
Yes. The CMA has allowed it for fiscal years beginning in 2022 or later (2023 for fund managers), provided each property is valued by two valuers holding the TAQEEM fellowship and the lower value is used.
Is the tax on selling investment property different from selling a home?▾
The 5% Real Estate Transaction Tax applies to transfers of property generally, with specific exceptions, such as the state bearing the tax on an eligible citizen's first home within set limits, which does not apply to investment property.
Is rent from investment property subject to VAT?▾
It depends on the type: residential rent is exempt, while commercial rent such as offices and shops is subject to 15% VAT if the landlord is VAT-registered.
Who values investment property?▾
An accredited valuer licensed by the Saudi Authority for Accredited Valuers in the real estate sector; the CMA requires listed companies and real estate funds to use valuers holding the fellowship.
