Water rights and air rights represent a category of contract-based intangible asset that is rapidly growing in importance. As water scarcity intensifies globally and urban density increases, the contractual rights to use these natural resources are becoming some of the most valuable and contested intangible assets in the economy.
Under IFRS 3, both water rights and air rights are classified as contract-based intangible assets — they arise from governmental allocations, contractual agreements, or statutory frameworks that grant specific parties the right to use or develop a natural resource within defined parameters.
A water right is the legal entitlement to use water from a specific source — a river, aquifer, reservoir, or watershed — for a defined purpose (agricultural irrigation, industrial use, municipal supply, or hydroelectric power). Water rights are allocated through various legal frameworks:
| Framework | Description | Key Jurisdictions |
|---|---|---|
| Prior appropriation | "First in time, first in right" — senior rights take priority | Western US states |
| Riparian rights | Rights attached to land adjacent to water source | Eastern US, England & Wales |
| Government allocation | Central authority allocates and manages water use | Australia, much of Asia, Africa |
| Market-based trading | Water entitlements traded in regulated markets | Australia (Murray-Darling Basin), Chile |
Water scarcity is transforming water rights from routine agricultural assets into premium intangible assets with financial investor interest:
Water rights are among the fastest-appreciating intangible assets globally. In water-scarce regions, the right to extract a defined volume of water may be worth more than the land it irrigates. Acquisitions of agricultural, mining, or industrial businesses in water-stressed areas must carefully value the embedded water rights.
Market approach: Where water rights are actively traded (Australia's water markets are the most liquid), comparable transaction data provides direct evidence of value. Australian temporary water allocations and permanent entitlements are traded daily with transparent pricing.
Income approach: The economic benefit of water access — measured as the profit contribution from the activity the water enables (farming, mining, manufacturing) — provides the income base for valuation.
Cost approach: The cost to secure equivalent water access from alternative sources (desalination, water transport, alternative supply infrastructure) provides a ceiling value.
An agricultural business in eastern Australia is acquired with permanent water entitlements of 5,000 megalitres in the Murray-Darling Basin. Current market price for permanent entitlements: AUD $3,500 per megalitre. The water rights alone are valued at approximately AUD $17.5 million — potentially exceeding the value of the land and farming infrastructure.
Air rights are the legal right to develop, use, or control the airspace above a property. In urban planning, air rights determine how tall a building can be constructed — and crucially, unused air rights can be transferred or sold to adjacent properties, allowing taller development elsewhere.
In dense urban markets, air rights represent extraordinary intangible value because they unlock the ability to build vertically in locations where horizontal expansion is impossible:
In markets like Manhattan, London, and Hong Kong, unused air rights can be worth thousands per square foot. The transfer of air rights — where a low-rise building sells its unused development potential to an adjacent high-rise development — is a well-established market mechanism with observable transaction prices.
A church in midtown Manhattan owns a low-rise building with significant unused air rights (the zoning permits a much taller structure). A developer acquires the right to use the church's unused air space for an adjacent tower development, paying $300 per buildable square foot for 200,000 square feet of transferable development rights — a $60 million air rights transaction for what is, in physical terms, empty space.
An increasingly important subcategory of environmental intangible assets is carbon credits and emissions allowances. These government-allocated rights to emit greenhouse gases are tradeable, measurable, and valuable:
Carbon credits acquired in a business combination are contract-based intangible assets with clear separability (actively traded) and contractual basis (government allocation). Valuation uses the market approach — current trading prices provide direct fair value evidence.
Environmental intangible assets are particularly sensitive to regulatory change. Water allocations can be curtailed in drought. Air rights can be reduced by zoning changes. Carbon credit prices can collapse if governments weaken emissions targets. Valuation must account for regulatory and climate risk — these are not stable, guaranteed rights.
Environmental rights typically have defined terms:
Environmental intangible assets are increasingly relevant to ESG-focused investors. A company's water rights portfolio, carbon credit holdings, and environmental permits directly affect its sustainability profile and climate risk exposure. Quantifying these assets — through the Opagio valuator — provides both financial and sustainability insight.
Water rights and air rights are among eight contract-based intangible assets under IFRS 3. For the complete taxonomy, see 35 types of intangible assets. To explore environmental intangible assets further, read our energy and cleantech intangible collateral guide.
Tony Hillier is an Advisor at Opagio with over 30 years of experience in structured finance, M&A advisory, and intangible asset valuation. Meet the team.
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