The pros and cons of buying 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. 

While the land is inexpensive, in comparison to 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, a member of MCHI, explains that “Many investors feel that buying agricultural land in neighboring districts of tier-1 and tier-2 cities and rural areas, is the best investment alternative in the prevailing 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 reality markets.”

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.

ROI on agricultural land

Returns on investment on land purchases are higher in emerging and developing areas, where there is a possibility of upcoming infrastructure projects. Rates of land along the Jewar airport site have, for example, started to move upwards after the UP government announced that it would build the national capital region’s second airport in Noida.

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 the future, he says.

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 projects in the near future.

As is true of all land-related developments, your asset does not depreciate with time – something that cannot be said about the 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 the 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.

Conversion is not easy: You cannot convert a fertile piece of agricultural land into a residential one. The land should be 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 is 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 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, gay, the buyer should be aware of the gaj to sq ft/sq meter conversion. This would enable him to gauge the per sq ft price of the land.

Risks in buying plots, land parcels

Even though the benefits of buying a land parcel or plot are innumerable, especially if it is agricultural land, there are certain risks involved in such purchases, as well. This is particularly true in case the buyer is not extremely careful about the property’s documents. While states have made it easier for investors to find all land-related information online, a great deal of diligence has to be employed, to ensure that all the documents are in place and there is no forgery.

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.

Documents required for buying agricultural land

Here is a list of documents 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 farmlands 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 liberalized 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.

Mistakes to avoid while buying agricultural land
  • It is crucial to ensure that one takes into account the importance of land titles. Check the title of the farmland, before purchasing it. This is beneficial in two ways – first, it helps in avoiding legal complications and second, it helps in acquiring the land faster.
  • Buyers should be aware of the farmland laws, especially if they belong to another state. Agricultural farmlands come under the jurisdiction of the state and therefore, rules can vary across different states. It is essential to check the existing laws before purchasing the agricultural land.
  • Buyers should also ensure that they physically verify the property and look into its details. This is important for agricultural land, as the buyer needs to know the quality of soil and other such features.
Documents required for land due diligence

The following documents are required for this purpose:

  • Khata certificates
  • Grant certificates
  • Encumbrance certificate
  • Conveyance certificate
  • Patta book
  • Mutation documents
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 them online.
  8. Offer tours or classes on farming.
  9. Use the land to generate solar energy

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