What are the advantages and disadvantages of owning permanent water entitlements vs selling them?

Hi, some thoughts for you from my perspective on advantages and disadvantages.

The advantages of owning permanent water entitlements is that you have guaranteed access to whatever water is allocated to the entitlement each year and any water that you don’t use can be traded on a temporary (annual) basis which in a year like this was worth up to $550/ML in most southern valleys (if you had any allocation to sell) or carried over for use next year. The banks can also use permanent water entitlements as security for loans as depending on what class of water you own and which state it is in entitlements can be worth between $1600 to $7000 per megalitre. Water entitlements have been a good investment in recent years pretty much rising in value with land prices and in some cases doubling over the last three years.

These values can also be seen as a disadvantage to ownership as well. If you have 1000ML of entitlement you could have between $1.6 and $7 million of capital tied up in water assets. Clearly, selling entitlements can release large amounts of capital for alternate use but will come at the expense of water security.  Water can be purchased on an annual basis and in years when there is plenty of water in the system and water is cheap then having all that money tied up in entitlements can sometimes seem like an inefficient use of funds. It is all a matter of affordability and risk. If you can afford to hold entitlement your risk of access to water is generally reduced. If you don’t own entitlement and need water you are more exposed to a sometimes volatile temporary market.