The Portfolio Benefits of Investing in Australian Water Rights
Australian water markets are regarded as one of the best regulated globally, as water assets have strong and enforceable property rights to foster investment certainty. Investing in Australian water is done via two types of tradeable assets:
- Water Entitlements: A right to receive annual water allocations, which is underpinned by strong property rights that mirror land titles. These rights are perpetual, transferable, mortgageable and can be divided and amalgamated; and
- Annual Water Allocations: A right to use a specified volume of water each year. The “water year” starts on Jul 1 and water authorities announce allocations on the 1st and 15th of each month (up to 100%) for each entitlement class. When allocations increase, volumes are credited to the entitlement owner’s water account.
The southern Murray Darling Basin (“sMDB”) regulated surface-water market (includes environmental volume), accounts for 45% of the value of issued Australian water entitlements. The sMDB is considered the most sophisticated water market globally due to:
- Its hydrology, as the major rivers of the Murrumbidgee, Murray and Goulburn are all connected;
- Its regulation, as it permits trade in water allocations across the major river valleys and 3 states (namely Victoria [“VIC”], New South Wales [“NSW”] and South Australia [“SA”]); and
- Its scale (covers an area roughly the size of Germany), as a single water entitlement can service thousands of farms operating across a wide range of irrigated agri-sectors and geographies.
Trade in water assets occurs in an established market, where price is driven by supply and demand. Long-term fundamentals of declining rainfall and increasing agri-production support investing in Australian water assets.
Given their unique and value-add investment characteristics, a diversified portfolio of high-quality Australian water assets could be held in numerous parts of an investor’s total portfolio.
This white paper summarises water assets’ characteristics and the benefit of including them in a portfolio.
