Legal Definitions - real asset

A real asset refers to a tangible, physical item that possesses intrinsic value, meaning its worth is derived from its substance, properties, or utility rather than from a contractual claim or a piece of paper. Unlike financial assets such as stocks, bonds, or cash, real assets are typically physical commodities, property, or infrastructure. They can generate income, appreciate in value over time, or serve as a hedge against inflation.

Here are some examples illustrating what constitutes a real asset:

• Example 1: Commercial Office Building

  Imagine a real estate investment firm purchasing a multi-story office building in a bustling city center. The firm intends to lease out office spaces to various businesses.

  This office building is a real asset because it is a physical structure built on a specific piece of land. Its value is inherent in its physical presence, its location, its capacity to provide usable space, and its ability to generate rental income. It is not merely a promise of future payment or a share in a company, but a tangible property that can be seen, touched, and occupied.

• Example 2: Agricultural Farmland

  Consider a large farming corporation that acquires several hundred acres of fertile land dedicated to growing corn and soybeans.

  This agricultural farmland is a real asset. Its value comes directly from the physical land itself, its soil quality, its water access, and its capacity to produce crops. The land is a tangible resource that can be physically worked, and its output (the crops) also represents a physical commodity. Its worth is tied to its physical attributes and productive potential, not to a financial instrument.

• Example 3: Wind Turbine Farm

  A utility company invests in constructing a large wind turbine farm in a windy coastal region to generate renewable electricity for its customers.

  The wind turbine farm, including all the individual turbines, their foundations, and the associated electrical infrastructure, constitutes a real asset. These are physical machines and structures that occupy land and convert wind energy into electricity. Their value is derived from their physical components, their operational capacity to produce energy, and their tangible presence, making them a productive and physical asset.