The pros and cons of buying agricultural land


A number of urban investors are investing in agricultural land, owing to the slump in urban realty and the promise of greater long-term returns. We examine the benefits and risks, for those who wish to buy agricultural land.

With growing purchasing power, investors in India are now searching for innovative ideas to earn returns from their investments. One such way is investing in agricultural land. While some investors keep such land as an asset, there is a section of investors who leverage the growing market of organic fruits and vegetables, to supplement their income. A number of experts have agreed that farm investment is a safe option for parking one’s funds as the return on investment is usually higher than other investments and also lends safety to investors’ money. Also termed as agro-realty, the market for such investors is growing, especially after the COVID-19 pandemic.

 

Urban investors are now looking at the returns potential of agricultural land in the suburban or peripheral areas of big cities and state capitals.

“While the land is inexpensive, in comparison to an urban land, investors expect some healthy returns in terms of resale value

There is an increasing demand for such land parcels, owing to the scarcity and high price of land in cities, with urban investors buying it to earn profits on resale or use it for cultivation.

Ravi Gaurav, member of MCHI, explains that “Many investors feel that buying agricultural land in neighbouring districts of tier-1 and tier-2 cities and rural areas, is the best investment alternative in the prevalent market conditions. Although agricultural land has always been considered as one of the best long-term investment options, it has become sought after now, due to the slump in urban realty markets.”

See also: How to do due diligence for land purchase

For example, a plot of 120 sq yards in Lucknow’s city area, costs Rs 8-18 lakhs. In comparison, agricultural land can be bought for Rs 1-8 lakhs, per acre, depending on the location and proximity to the city. The scenario is similar in most metro cities.

However, buying agricultural land can be tricky.

 

Potential ROI on agricultural land

The returns are higher in emerging and developing areas, where there is a possibility of upcoming infrastructure projects, such as a special economic zone or a highway. Pradeep Mishra, a Delhi-based real estate consultant, points out that “It is good, if the land is located in an area where some government scheme is to be launched, or if it is included in the master plan of the region.” Chances are that such a piece of land will fetch a higher value, in future, he adds.

 

Advantages of investing in agricultural land

An agricultural land plot can guarantee long-term returns, if it is in an area where the government has planned some infrastructure project in the near future.

Moreover, the compensation, in the case of acquisition by the government, is higher for rural land than that for an urban land. A number of state governments are also planning a land pooling policy, for areas where city is expanding. If you become an owner under the land pooling policy, you will get a guaranteed regular returns from the pool.

See also:  Commonly used land and revenue record terms in India

As is true of all land-related developments, your asset does not depreciate with time – something that cannot be said about property such as flats, apartments, etc. With time, the quality of the building structure deteriorates and the owner has to spend substantial amounts of money, to maintain it. Investing in agricultural land, not only saves you from spending all that money  but also leaves you with an option to use the land for varying purposes in future, within the boundaries of the law.

 

Disadvantages of buying agricultural land

Not everyone can buy: As per the law, you need to be a farmer to own agricultural land in India. While most states have such a ruling, some have eased this prerequisite. You may also get receive such a land, through a gift or through inheritance.

See also: Can an NRI purchase or own a property in India?

Conversion is not easy: You cannot convert a fertile piece of agricultural land into a residential one. The land should be a dry land, for conversion.

Land Ceiling Act: A number of states restrict the ownership of land. Therefore, check how much can be bought in that state.

Not everyone can buy: NRIs, for instance, cannot buy agricultural land in India.

Knowledge of local land laws and terminology are a must: Buying agricultural land could be extremely difficult, if the buyer is not well aware of the land laws and the local terminologies used in the course of the transaction. Since land is a state subject, laws are different in each state and not having a thorough knowledge, will be disadvantageous, considering the legalities involved in the process.

The knowledge of local land measurement units, for example, is a must to have a clear understanding and extent of the land parcel you are buying. The knowledge of conversion of these units to globally accepted measurement units, would also give you an idea about the per sq ft rate you will be paying for the same.

If the locally used land measurement unit is, say, gaj, the buyer should be aware of the gaj to sq ft/sq metre conversion. This would enable him to gauge the per sq ft price of the land.

See also: Local land measurement units in India

Pros of buying agricultural landCons of buying agricultural land
Guaranteed long term returnsBuyer should be a farmer by possession
Government compensation is higher if gets acquiredLand conversion is complicated
Can participate in land pooling policyFew states restrict ownership of farmland

 

Check applicable laws

Evaluate other applicable laws pertaining to the transfer of the rights to the land, ownership records of the land and leases, if any. Often, such plots of agricultural land may not be transferrable. The land may also be a leased one. In such cases, make sure that the tenants do not have any rights over the land and only enter into the transaction, after all such issues are cleared.

See also: Legal tips for buying agricultural land in India

 

Documents required for buying agricultural land

Here is a list of document that you need, to buy agricultural land. This may vary as per the state:

  • 7/12 extract
  • 6/12 extract
  • 8A extract
  • Land revenue tax receipt
  • Village map (gaon naksha)
  • Soil testing report
  • Original title deed
  • Encumbrance certificate
  • Registration/conveyance deed, if any.

 

Trends in agro-realty

Investors in this segment, are either buying dry converted rural land, or are buying land through resale. While the value is still lower than land plots in the city area, these investors become owners of land in a rural area. This way, they become eligible for buying more actual agricultural land. Some people also buy a small piece of residential property in a village and use this residential address, to buy an agricultural land within the same village.

Prices of agricultural land are expected to increase, especially around urban areas, owing to the growing demand for affordable housing, which is only feasible along the outskirts of metro cities. Land in such areas is also in demand, for public and private projects, adds Gaurav. Nevertheless, you will need to spend a substantial amount to buy the land and hence, you should cover all the risks, before you enter the deal.

 

Agricultural land for real estate development

Investors who are considering buying an agricultural property in rural areas around the city, may find this opportunity very lucrative as, now, a number of state governments are opening up farm lands for housing development and industrial purposes. Recently, the state government of Gujarat announced that real estate developers will be allowed to purchase agricultural land for affordable housing under the Gujarat Tenancy Act. Similarly, in Karnataka, the state government passed amendments to the land reforms act that liberalised farmland ownership and extends the facility to buy agricultural land by a non-agriculturist. This could just be a start and very soon, other states may open up farm lands for real estate construction, resulting in more supply and maybe, cheaper homes.

 

Is it worth buying agricultural land in India?

Investing in agricultural land is capital-intensive. Therefore, investors should have a clear financial plan in mind, before investing in agricultural land. Also, it is imperative that investors keep realistic expectations from their investment, as the returns from farmland is not as attractive as believed. Usually, agricultural land is considered a good investment for high net-worth individuals and for those with surplus income. For salaried or self-employed individuals, living in cities, going through all this process will be time-consuming and tiresome.

 

How to make your land a profitable investment?

You can employ the following methods, to turn your land investment into a profitable venture:

  1. Depending upon the location, you can rent it out for community gardening.
  2. Start blogging about your newest farming adventures.
  3. Set up a beehive farm and convert it into a tourist activity.
  4. If the land is fertile, grow unique flowers to sell at the local market.
  5. Sell plant seeds online.
  6. Offer your services for pet sitting/creche.
  7. Grow herbs and sell it online.
  8. Offer tours or classes on farming.
  9. Use the land to generate solar energy.

 

Impact of Covid-19 on land rates

Even though property appreciation has remained highly affected, because of the Coronavirus pandemic that broke out towards the end of 2019, its impact on land values has been limited. This is because of the scarcity of land in developed areas and also because this asset does not undergo any depreciation.

 

FAQs

Is sale of rural agricultural land taxable?

Agricultural land in rural areas is not considered a capital asset. This is the reason any gains from its sale are not taxable under the head Capital Gains.

How much construction is allowed on agricultural land?

Agricultural land cannot be used for constructing property. You need to get the land use converted from agricultural to residential before any construction.

How to convert agricultural land to non-agricultural land?

Land is a state subject and according to law, fertile land cannot be converted to be used for residential purposes. Only dry or barren land parcels could be converted.

(With inputs from Surbhi Gupta)

 

Was this article useful?
  • 😃 (40)
  • 😐 (12)
  • 😔 (12)

Comments

comments