| 14. | Investment properties |
| 31 December 2017 |
31 December 2016 |
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Cost |
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Opening balance |
165,472 | 164,467 | ||||||
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Addition |
— | 1,005 | ||||||
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Disposal |
(940 | ) | — | |||||
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Transfer to property, plant and equipment (*) |
(64,594 | ) | — | |||||
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Closing balance |
99,938 | 165,472 | ||||||
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Accumulated depreciation |
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Opening balance |
(119,202 | ) | (114,895 | ) | ||||
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Transfer to property, plant and equipment |
22,366 | — | ||||||
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Depreciation and impairment charges during the year |
(2,337 | ) | (3,530 | ) | ||||
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Disposal |
215 | — | ||||||
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Other |
— | (777 | ) | |||||
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Closing balance |
(98,958 | ) | (119,202 | ) | ||||
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Net book amount |
980 | 46,270 | ||||||
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| (*) | During the year, the Group transferred its building located in Istanbul, Tepebası from investment properties to property, plant and equipment due to the change in purpose of use. |
Determination of the fair values of the Group’s investment properties
The Group engages qualified external valuers, authorized by the Capital Markets Board of Turkey, to perform the valuation of investment properties. Management works closely with the qualified external valuers to establish the appropriate valuation techniques and inputs to the model. The fair values of these investment properties were determined using a variety of valuation methods: direct capitalization approach and income capitalization approach, replacement cost approach and market approach. In estimating the fair values of the properties, the highest and best use of the property is its current use.
Rent income from investment properties during the year ended 31 December 2017 is TL 2,821 (31 December 2016: TL 2,317 and 31 December 2015: TL 1,836). Direct operating expenses for investment properties during the year ended 31 December 2017 is TL 22 (31 December 2016: TL 22 and 31 December 2015: TL 126).
The Group’s investment properties and their fair values at 31 December 2017 and 2016 are as follows:
| 31 December 2017 | Level 1 | Level 2 | Level 3 | Valuation Method | ||||||||||
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Investment properties in Izmir |
— | — | 52,110 | Replacement cost approach | ||||||||||
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Investment properties in Gebze |
— | — | 16,690 | Income capitalization approach | ||||||||||
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Investment properties in Ankara |
— | — | 15,160 | Market approach | ||||||||||
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Investment properties in Istanbul |
— | — | 13,000 | Market approach | ||||||||||
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Investment properties in Adana |
— | — | 3,150 | Replacement cost approach | ||||||||||
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Investment properties in Balıkesir |
— | — | 3,112 | Replacement cost approach | ||||||||||
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Other investment properties |
— | — | 3,970 | Replacement cost approach | ||||||||||
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Other investment properties |
— | — | 2,146 | Market approach | ||||||||||
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| — | — | 109,338 | ||||||||||||
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| 31 December 2016 | Level 1 | Level 2 | Level 3 | Valuation Method | ||||||||||
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Investment properties in İstanbul: |
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– Istanbul Tepebasi |
— | — | 321,835 | Direct capitalization approach | ||||||||||
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– Kucukcekmece |
— | — | 12,890 | Replacement cost approach | ||||||||||
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Investment properties in Gebze |
— | — | 12,558 | Income capitalization approach | ||||||||||
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Investment properties in Izmir |
— | — | 42,315 | Replacement cost approach | ||||||||||
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Other investment properties |
— | — | 17,419 | Market approach | ||||||||||
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Other investment properties |
— | — | 8,946 | Replacement cost approach | ||||||||||
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Other investment properties |
— | — | 2,410 | Direct capitalization approach | ||||||||||
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Total |
— | — | 418,373 | |||||||||||
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Significant unobservable inputs and sensitivity of fair values of respective investment properties are as follows:
Fair values of the investment properties determined based on the “direct capitalization” approach will increase/(decrease) significantly, when there is a significant decrease/ (increase) in capitalization rate and a significant increase/(decrease) in current market rentals. Capitalization rate is calculated by dividing comparable properties’ annual net operating income by the selling price of the respective properties.
In the “income capitalization” approach, a significant increase/(decrease) in rentals will cause a significant increase/(decrease) in the fair value. In addition, a slight decrease/(increase) in risk premium and discount rate which are calculated by considering the current market conditions will cause a significant increase/(decrease) in the fair value.
In the “replacement cost approach”, a significant increase/(decrease) of construction costs and miscellaneous costs of any similar properties in the market will cause a significant increase/(decrease) in the fair value.
In the “market approach”, a significant increase/(decrease) in the market value of any properties which are located in the similar areas with similar conditions will cause a significant increase/(decrease) in the fair value.