Investing in Agricultural land has become a new and safe investment option. Investment in farmland is being seen as a fair and safe investment in the economic uncertainty of the post covid environment. There are fair long-term returns from investing in agricultural land and there are convenient ways to get agricultural land such as the land pooling Policy. Prospective investors, however, need to be well versed with applicable laws including the land ceiling act.
Potential ROI on Agricultural Land
There is a high return on investment in agricultural land, especially if it is used for growing cash crops and organic products which are sought-after health foods in today’s fertilizer and pesticide-choked vegetables normally available in the market.
The return on investment can be multiplied several fold when there is little research done on agricultural land in a particular area where the government is planning PPP (Public Private Partnership) projects or where SEZ (special economic zones) are being created. This will cause the value of the land to increase exponentially when government projects are announced. This strategy is also known as the Development method for land valuation.
Advantages of investing in Agricultural Land
The biggest advantage of investing in agricultural land is that there is never a loss. The value of the land is sure to increase over time, though the rate of increase may vary from place to place.
Using the development method as a means to acquire agricultural land is very lucrative as the value of agricultural land goes up many times in places where the government is launching infrastructure projects. In addition to value appreciation, there is the factor of government compensation for acquiring land for development projects such as an expressway where a plot of land comes in between. It may be noted that the government compensation package for acquiring land is much more in rural areas than in urban areas.
The biggest advantage of agricultural land is that it does not deteriorate nor depreciate with time. As far as land is concerned, the opposite is true: that land value appreciates with time. This type of property requires no maintenance or upkeep, unlike buildings and sheds.
Disadvantages of investing in Agricultural Land
The biggest disadvantage of investing in agricultural land is the number of hurdles, protective laws, and restrictions on use.
For instance, many states in India allow only farmers to buy and acquire agricultural land. They also ensure that the land is used for nothing else but agriculture. There are exceptions from state to state. For example, Karnataka allows only farmers and members from farmer families to own agricultural land. In Telangana, however, there are no restrictions and anybody is free to acquire agricultural land.
The next disadvantage is the restriction on ownership. There are exceptions such as NRIs who are not allowed to purchase agricultural land.
Another one is partial knowledge. There are so many laws specific to certain states and areas. There are land measurement units that vary from state to state. For instance, a buyer was very happy to get land at Rs 20000 per Cottah till he discovered that the value of a Cottah in that area was only 350 sq feet unlike the 720 sq feet in his home state and that he was buying land at almost double the rate he was assuming.
Further, the Land Ceiling Act is a law that restricts the amount of land that a person can own. The quantity again varies from state to state.
Check Applicable Laws
The laws that are needed for purchasing agricultural land are the Land Ceiling Act, the possibility of the land can be converted into non-agricultural land, and ownership laws.
Documents required for buying agricultural land
The documents needed for buying agricultural land are
- Receipt of tax revenue
- Soil testing Report
- Original Title Deed
- Encumbrance Certificate- mentions the 30-year history of the property and details of liabilities and litigation on the property
- Village record (Gaon Naksha)
- Registration Deed
- 8A Extract- known as a Khate Utara, this document specifies the holding of the owner of the property.
- 7/12 extract- This is an extract from the village register given by the revenue department to the Tehsildar. This extract gives all details about a plot such as ownership, survey number details, and liabilities of any kind
- 6/12 extract
Trends in Agro Realty
The strict rules against misuse of agricultural land have made agro realtors find ways and means to bypass the system and acquire more agricultural land.
Many investors and purchasers of land are buying waste and dry rural land at throw-away prices and exchange the land for a better one. Another one is to buy land on resale and enter the rural land ownership through an indirect channel. After accomplishing this, such purchasers now become eligible for more agricultural land.
Another ruse in the bag of tricks to acquire agricultural land is a very clever ploy. The purchasers using this ploy buy a small plot of residential property in a village and then use this village’s rural address to buy more agricultural land.
There is considerable agricultural land in the periphery of urban areas. As demand for housing grows in urban areas, the demand for such agricultural land is growing by the day. Investors and developers are grabbing such land as fast as they appear in the market. Homebuyers are cautioned to study land documents carefully and ensure that they do not buy homes on land that does not have permission for residential use.
Agricultural land for Real estate Development
There is now a ray of hope and opportunity for real estate developers buying Agricultural land for building residential projects. Several state governments are now offering agricultural land for residential use. Gujarat and Karnataka are two states that have relaxed the Land Tenancy Act and have also liberalized farm ownership norms to allow developers into acquiring agricultural land.
This is expected to set a precedence for other states to follow suit.
Is it worth buying agricultural land in India?
Investment in agricultural land in India is an investment of calculated patience. Returns from agricultural land are a financial surplus income and satisfying for people with high income and who do not depend solely on income from agricultural land for their living.
For city dwellers and people drawing salaries from regular jobs, work on agricultural land can be tiring and cumbersome. There is also a risk of vacant land being illegally occupied and the subsequent activity of litigation for eviction can be expensive and time taking. This is a realistic scenario that invests in agricultural land a risky enterprise in India.
How to make your land a profitable investment
Here are some tips that people are actively doing in this new 21st-century avatar of concept farming and effective use of land for best returns
- Organic farming and direct delivery of products to select retail stores
- Setting up solar panels to generate and sell electricity to state electricity boards.
- Offering online tutorials on farming and agriculture. Tying up with agricultural institutes for specialized and scientific agriculture.
- Setting up a beehive and marketing the honey.
- Growing medicinal herbs and tying up with Flipkart and Amazon for online marketing and delivery
- Convert the land into a flower garden and market exotic flowers online.
- Generating compost and sell compost as a rich fertilizer.
- Collecting and selling seeds. Getting help from government agriculture development firms in the form of finance and retail supply
- Make an artificial pond in the land and make it a fishery. You can also supply fish to aquaria.
- Turning a part of the land into a nursery and selling plants and saplings. Supplying and marketing plants online.
- Setting up a pet care centre or a creche within the farmland.
- Making a dairy farm for selling milk, egg, and other farm products.
Impact of Covid-19 on land rates
There has been a mixed impact of Covid-19 on land rates. While land rates have not gone down, the rate of growth that was expected has not happened. Property rates continue to be high in areas with high urban density.
There is a trend of industries and commercial establishments moving to tier II and Tier III cities in a post covid scenario. An example is the development of the Tier II city of Coimbatore as the next IT hub after Bangalore, Hyderabad, and Chennai. There are other tier-II cities such as Indore, Bhopal, Bhusawal, Aurangabad, Madurai, Lucknow, Patna, and Varanasi that are being developed as industrial and manufacturing hubs post covid.
Another post-Covid development is the birth of the agro realtor. Many investors are investing spare capital in agricultural land and generating a modest return on investment while keeping their investment secure. The Agri realtor business and investment have been termed by financial observers as one of the best and safest investment options in an environment of uncertain business and low returns.
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Frequently Asked Questions (FAQ’s)
1. What benefit Can I get from paying to get agricultural land converted to residential land?
There are at least 3 states that have begun permitting the conversion of agricultural land to residential land. The benefit is that with the conversion fee, you are allowed a 20% extra floor area ratio (FAR) on the land. This essentially means you can build 20% more construction than is normally permitted.
2. Can I use my agricultural land as a farm and attract tourists?
You can use your agricultural land as a farm. You can even invite tourists to demonstrate innovative ideas in farming. But there is a restriction of using only 10% of the land for any construction. The construction must be for the use of the family members of the owners, for keeping farm animals and Agri hardware used in the farm. You can even use the farm for training and educations and tie-up with agricultural colleges to demonstrate cash crop farming.
3. What is the 7/12 extract document that is required for the registration of agricultural land?
The 7/12 extract is a village document that can be called the rural equivalent of a combination of an encumbrance certificate and a Record of Rights (ROR) document. The 7/12 extract is an extract from the land register of the Tehsildar. This document shows the ownership, occupancy, liabilities, rights, and other agricultural aspects of a piece of land. The numbers seven and twelve of this extract denote the village form 7 which refers to section 7 (Continuance of requisition) and section 12 (Power to obtain information).
4. What is the policy of land pooling?
The phenomenon of land pooling is where small pockets of land owned by different individuals get together and pool their pockets of land into a bigger plot of land for a specific development project. This is being done in the Delhi NCR and 6 of the 15 zones of Delhi came under the Land pooling policy (LPP) for the development of Master plan 2021 to make Delhi into a smart city. This scheme is witnessing societies, developers and landowners pool their land and assign the larger plot thus formed to the government for development of a part and using the rest for infrastructure development.
5. What is the tax benefit from having agricultural land?
There are tax benefits on income from agricultural land. The other tax benefits are the land being exempt from capital gains as rural agricultural land does not come under the purview of Capital assets. This is the reason why many developers prefer to acquire vacant barren land in rural areas and later exchange it for agricultural land.
