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.
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.
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.
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.
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.
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.
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.
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.
Investing in agricultural land in India offers numerous advantages for investors like:
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.
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.
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.
Before investing in agricultural land in India, there are several crucial factors that investors should carefully evaluate:
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.
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.
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.
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.
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.
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.
Investing in Agricultural land in India offers various options for investors
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.
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.
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.
Investing in agricultural land involves inherent risks. Understanding and mitigating these risks is crucial for safeguarding your investment:
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.
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.
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.
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:
However, there are some states where only agriculturists can buy agricultural land. These states include:
The maximum area of agricultural land that a person can buy in India also varies from state to state. The following are some examples:
There are a few ways to finance your investment in 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, 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:
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.
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.
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).
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.
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.
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.
If you want our team to help you Further, Please
With our deep-rooted passion for land development and commitment to excellence as the leading land developers in Bangalore, Agrocorp invites you to be a part of our remarkable journey. Explore our diverse portfolio of land parcels and embark on your path to building your dream abode. Experience the joy of sustainable living, cherish moments with your loved ones, and embrace a harmonious lifestyle amidst nature's abundance.
Let us take you on an extraordinary voyage where we transform aspirations into reality.