Investing In Agricultural Land In India: A Complete Guide

Why invest in agricultural land in India? Is investing in agricultural land in India a great option? Is it good to invest in agricultural land in India? I am sure you also might be having queries like these, but trust me when I say it — the answers to these questions can vary from person to person.

With the continuous growth of the world's population, the demand for food and agricultural products is on the rise. India, known for its vast fertile lands and rich agricultural heritage, presents a lucrative opportunity for investors seeking to capitalise on the agricultural sector's potential. Investing in agricultural land in India can offer long-term benefits.

If you are thinking of investing in agricultural land in India, then this article is for you.

What makes agricultural land in India a smart investment?

When it comes to investment opportunities, agricultural land in India has emerged as a compelling option for those seeking long-term growth and diversification. Beyond its intrinsic value in food production, agricultural land holds immense potential as a lucrative asset class. Let us explore the key reasons why investing in agricultural land in India can be a wise financial decision.

a) Tangibility:

Investing in agricultural land provides a tangible asset that can withstand economic fluctuations. Unlike other investments prone to market volatility, land maintains its value over time.

As a limited resource, the demand for land in India continues to rise due to population growth, urbanisation, and infrastructure development. By acquiring agricultural land, investors gain a tangible asset that has historically appreciated in value, offering potential capital appreciation.

b) Income Generation Opportunities:

Investing in agricultural land offers various avenues for generating income. Lease agreements with local farmers or agricultural companies allow landowners to earn rental income, providing a steady stream of cash flow. Additionally, land can be utilised for contract farming, where farmers cultivate specific crops on behalf of buyers. This arrangement generates income and minimises agriculture's operational and market risks. By harnessing the income potential of agricultural land, investors can achieve both capital appreciation and regular returns.

c) Diversification of Portfolio:

Agricultural land serves as a valuable diversification tool within an investment portfolio. In the face of uncertain market conditions, having exposure to non-correlated assets is essential for risk management. Agricultural land acts as a diversifier, as its performance tends to be independent of other traditional investments. By adding agricultural land to their portfolio, investors can reduce overall risk and potentially enhance long-term returns.

d) Tax Benefits of Buying Agricultural Land in India:

Investing in agricultural land in India comes with certain tax benefits. Agricultural income is often exempt from income tax, making it an attractive proposition for investors. As Rural Agricultural Land does not constitute a Capital Asset, therefore Capital Gains Tax is not levied on the sale of Rural Agricultural Land. This will apply irrespective of the value of the transaction, and the capital gains tax on the sale of agricultural land will not be levied in any case. These tax advantages enhance the profitability of investing in agricultural land and contribute to overall returns.

e) Favourable Government Policies and Guidelines:

The Indian government recognises the importance of agriculture and has introduced numerous policies to encourage investment in the sector. Initiatives such as the Pradhan Mantri Krishi Sinchai Yojana (Prime Minister's Agriculture Irrigation Scheme) and subsidies for agricultural infrastructure development aim to boost productivity and make agriculture more lucrative. By investing in farmland, individuals can align themselves with these government initiatives and benefit from the favourable policies that support the sector.

f) Social Impact of Investing in Agricultural Land in India:

Investing in farmland allows individuals to make a positive social impact by supporting rural communities and contributing to food security. Agriculture plays a crucial role in India's economy, employing a significant portion of the population. Investing in agricultural land can facilitate economic growth in rural areas, empower farmers, and contribute to sustainable development.

Advantages of Investing in Agricultural Land in India:

Investing in agricultural land in India offers numerous advantages for investors like:

a. Potential for Capital Appreciation:

Agricultural land tends to appreciate its value over time, mainly if it is located in an area with increasing demand or close to a developing growth zone. This means you can earn a profit when you sell the land in the future.

b. Volatile Asset:

Agricultural land is volatile, unlike stocks or bonds. This makes it a more secure investment, as you can assess the land's value and ensure it is used to its maximum potential.

c. Hedge against Inflation:

Agricultural land is a valuable hedge against inflation. Over time, the value of the land and the crops produced on it tends to increase.

Inflation often leads to rising prices for agricultural commodities, which can be advantageous for landowners and farmers, allowing them to generate higher income and capitalise on market trends.

Factors to Consider Before Investing in Agricultural Land

Before investing in agricultural land in India, there are several crucial factors that investors should carefully evaluate:

a) Location and Accessibility:

The location of the agricultural land plays a vital role in its potential for success. Opt for a location that is well-connected to markets, transportation facilities, and irrigation resources. Proximity to urban areas and developing growth zones can also be advantageous as well.

b) Legal and Regulatory Aspects:

Understanding the legal and regulatory framework surrounding agricultural land ownership is vital. Each state in India has its own set of rules and regulations governing land ownership, tenancy rights, and land use restrictions.

Conduct thorough due diligence to verify land titles, comprehend land acquisition processes, and ensure compliance with local regulations.

c) Soil Quality and Water Availability:

Assessing the soil fertility and the availability of water resources in the chosen region is essential. Good soil quality is crucial for successful farming, while reliable water sources ensure a consistent irrigation and crop growth supply.

Analysing soil reports, rainfall patterns, and water availability is imperative to make informed decisions about the land's agricultural potential.

d) Market demand:

Research the demand for the crops you plan to grow on the land and the price trends and competition in the local and national markets.

e) Financial Analysis and Risk Assessment:

Conduct a thorough financial analysis to assess the investment's viability. Consider factors such as initial investment costs, ongoing operational expenses, projected yields, and potential income streams.

Additionally, identify and evaluate potential risks, such as market volatility, natural disasters, and government guidelines. Develop effective risk mitigation strategies to safeguard your farmland investment.

f) Infrastructure:

The presence of adequate infrastructure is crucial for agricultural operations. Assess existing and planned infrastructure developments in the region, such as irrigation systems, storage facilities, access to electricity, and roads.

A well-developed infrastructure can significantly impact the productivity and profitability of farmland investment.

Types of Investments in Agricultural Land

Investing in Agricultural land in India offers various options for investors

a. Buying Farmland:

Purchasing agricultural land outright is a common investment option. This approach provides investors with full ownership and control over the land. However, it requires conducting thorough due diligence, including verifying land titles and ensuring compliance with local regulations.

Working closely with real estate advisors and legal experts can assist in navigating the complexities of land acquisition.

b. Contract Farming:

Contract farming is another agricultural land investment avenue where investors enter into agreements with farmers to cultivate the land and share the profits.

This option provides a more hands-off approach to farming while still reaping the benefits. It allows investors to leverage the expertise of local farmers while mitigating some of the operational risks associated with agricultural activities.

c. Managed Farm Communities:

 

Real-time image from one of our managed farm communities – THE PALM RESERVE

A managed farmland is an agricultural property owned by an individual or institution but managed by land developers responsible for developing and managing the entire community. Imagine your managed farmland inside a gated community of several other farmlands filled with amenities with picturesque views. This is what the concept of a managed farm community is all about.

If you want to own a piece of farmland, look no further than Agrocorp's managed farm communities. With our expert management and modern infrastructure, you can be sure your farmland investment will be well cared for and managed. Don't miss out on the chance to be a part of one of the best-gated communities.

Risks and Mitigation Strategies

Investing in agricultural land involves inherent risks. Understanding and mitigating these risks is crucial for safeguarding your investment:

a. Market Volatility:

Fluctuations in crop prices, changing consumer preferences, and unpredictable weather patterns can impact agricultural profitability. Diversifying the crop portfolio and staying updated on market trends can help mitigate these risks.

Additionally, forging long-term contracts with reliable buyers or exploring commodity futures trading can offer protection against market volatility.

b. Natural Disasters:

Natural calamities such as droughts, floods, pests, or diseases can adversely affect agricultural yields and lead to financial losses. Investors should secure comprehensive insurance coverage to mitigate potential risks associated with natural disasters.

Implementing preventive measures, such as crop rotation, employing modern farming techniques, and investing in irrigation systems, can also help minimise the impact of adverse climatic conditions.

c. Regulatory risks:

Government policies can significantly impact the agricultural sector. Stay informed about policies, subsidies, and regulations related to agriculture, land use, and ownership, which can change frequently and affect the value of your agricultural land investment.

Investors should carefully consider these risks before investing in farms and seek advice from professional land advisors to mitigate these risks and ensure a successful investment.

Who can buy agricultural land in India?

The eligibility criteria for buying agricultural land in India varies from state to state. In general, the following persons can buy agricultural land in India:

1. Indian Citizens
2. Persons of Indian origin (PIO)
3. Foreign nationals who are married to Indian citizens
4. Agriculturists, i.e., persons who are engaged in agricultural activities for a living

However, there are some states where only agriculturists can buy agricultural land. These states include:

• Andhra Pradesh
• Gujarat
• Karnataka
• Kerala
• Madhya Pradesh
• Maharashtra
• Odisha
• Punjab
• Rajasthan
• Tamil Nadu
• Uttar Pradesh
• West Bengal

Maximum Area of Agricultural Land That a Person Can Buy in India

The maximum area of agricultural land that a person can buy in India also varies from state to state. The following are some examples:

• In Andhra Pradesh, a person can buy a maximum of 10 acres of agricultural land.
• In Gujarat, a person can buy a maximum of 50 acres of agricultural land.
• In Karnataka, a person can buy a maximum of 20 acres of agricultural land.
• In Kerala, a person can buy a maximum of 15 acres of agricultural land.
• In Madhya Pradesh, a person can buy a maximum of 50 acres of agricultural land.
• In Maharashtra, a person can buy a maximum of 50 acres of agricultural land.

General Checklist of Documents Required for Title Scrutiny

1. Mother Deed or Parent Deed (Grant Order, Saguvali Chit or Oldest/All Title Deeds)
2. All other relevant Sale Deeds, Gift Deeds, Partition Deeds, Exchange Deeds, Release Deeds, Confirmation Deeds, Rectification Deeds, Wills and Testaments, Affidavits, etc.
3. Index of Lands Extracts
4. Record of Rights Extracts
5. Inheritance Register Extracts
6. Mutation Register Extracts
7. Family Trees
8. Death Certificates
9. Complete Phodi proceedings with respect to the bifurcation of Survey Numbers into SubNumbers, including the Mutation Register extracts reflecting it.
10. Conversion Orders and Sketches
11. Khatha Certificate, Khatha Extract, Demand Register Extract, Building / Land Assessment Register Extract, Form 9 and 11A, Form 11B, E-Khatha issued by the concerned authority in the name of present owner/s
12. Latest property Tax Paid Receipts
13. Survey Documents:
    • Moola Tippani (Original Tippani);
    • Re-survey Tippani;
    • Hissa Tippani Book Extract;
    • Hudbust Register Extract;
    • Atlas;
    • Karda Copy;
    • RR Balabhagada Copy;
    • Akarbandh; &
    • Location Map.
14. Encumbrance Certificates from 01/04/1950 to the present day

How to finance your investment in agricultural land in India?

There are a few ways to finance your investment in agricultural land in India:

• Personal savings: This is the most common way to finance your investment in agricultural land. However, it can be difficult to save enough money to buy land, especially if you are looking to buy a large plot of land or land in a prime location.


• Bank loans: Banks in India offer loans for the purchase of agricultural land. The interest rates on these loans are typically lower than the interest rates on personal loans. However, banks may require you to put down a large down payment and may also have other restrictions on their agricultural loans.


• Non-banking financial companies (NBFCs): NBFCs also offer loans for the investment in agricultural land. NBFCs may be more willing to lend to borrowers who do not meet the requirements of banks. However, the interest rates on NBFC loans are typically higher than the interest rates on bank loans.


• Government schemes: The Indian government offers a number of schemes to help farmers and agricultural entrepreneurs finance their investments. For example, the National Bank for Agriculture and Rural Development (NABARD) offers a variety of loans for the investment in agricultural land and for other agricultural projects.

Can I Build a House on Agricultural Land in India?

 

In India, building a house on agricultural land is generally not permitted as per land use regulations. Agricultural land is meant for cultivation, and any non-agricultural activity, including house construction, is only allowed with prior approval from the concerned authorities.

However, there are some exceptions to this rule. For example, suppose the agricultural land is within a designated urban area and falls under a development plan. In that case, the local development authority may allow the construction of a house subject to certain conditions and permissions. Additionally, some states in India may have their own specific rules and regulations regarding building on agricultural land which may allow construction in certain situations. For example, the Karnataka Land Revenue Act permits the development of farmhouses on agricultural land though the size should be at most 10 per cent of the land holding.

The alternate option for you is investing in managed farmlands like Agrocorp's managed farm communities, which enables you to own a piece of agricultural land and build a luxurious, premium farmhouse. But you may wonder whether you can build a farmhouse on agricultural land or not. Well, the answer to that is ‘Yes’.

It is important to note that violating land use regulations can result in penalties and legal consequences, so it is advisable to consult with a legal expert or land transaction advisor who specialises in this sector and obtain all necessary approvals before proceeding with any construction activity on agricultural land.

Conversion Of Land from Agricultural to Non-Agricultural

Conversion of land from agricultural to non-agricultural, termed "Change of Land Use", refers to changing the use of land previously used for agricultural purposes to a different purpose, such as residential, commercial, or industrial use.

To change the purpose of land usage, individuals must fill out an application form and send it to the Commissioner of the Land Revenue Department. This form should include all the reasons why land usage needs to be changed.

Moreover, several documents must be submitted along with the application form depending on each state. These include but not limited to:

• The Original Sale Deed
• Gift deed or Partition deed
• RTC (record of rights, tenancy & crops)
• The Mutation Letter
• A certified survey map
• The latest tax-paid receipt
• ID proof.

If the land is being converted from agricultural to non-agricultural use, an additional fee will need to be paid. The fee amount is determined based on the type of property and its location.

Applicants must also specify the size of the land, any existing mortgages, the type of crops and soil on the land, and ownership details of both the previous and present owners.

The Revenue Office can provide certified copies of all these documents. Any unpaid dues must be paid before applying, and proof of payment must be attached.

Conclusion

Investing in agricultural land in India presents a compelling opportunity for long-term investors seeking stable income streams and potentially high returns. With a favourable agricultural landscape, supportive government policies, and the ever-growing demand for food, this sector holds immense potential.

With its stability, income-generating potential, tax advantages, and social impact, agricultural land presents a compelling investment avenue. However, it is crucial for investors to conduct thorough research, consider factors such as location and market conditions, and seek professional guidance before making any investment decisions.

By following this comprehensive guide and considering the factors mentioned, investors can make informed decisions and unlock the potential of investing in agricultural land in India.

FAQs

Can NRI buy agricultural land in India?

No, NRIs cannot buy agricultural land, farmhouse or plantation properties in India. They can, however, inherit agricultural land from Indian residents but cannot acquire it. On the other hand, NRIs are free to invest in residential and businesses across India. Individuals interested in buying agricultural land must submit an application to RBI for approval (which is rarely given).

Is is good to invest in agricultural land in India?

Yes, it is good to invest in agricultural land in India because of the increasing demand for farm produce and rising income levels. However, it requires careful consideration and due diligence as factors such as soil quality, water availability, and government regulations can impact the value and productivity of the land.

What is the Farmland Appreciation Rate in India?

When investing in farmland, the appreciation rate in India has been around approx. 6% to 10% year on year, which is higher than the appreciation rate of commercial and residential property types and has steadily increased over the years.

Which is the best place to buy agricultural land in india?

The best place to buy agricultural land in India are Karnataka, Andhra Pradesh, Gujarat and Uttar Pradesh in terms of budget, climate, water availability and proximity to markets.