Buy farmland? Know these pros and cons before investing (2023)

table of contents

  • ROI on farmland
  • Advantages of investing in agricultural land
  • Disadvantages of buying farmland
  • Risks in the purchase of land, lots
  • Consult applicable laws
  • Documents required for the purchase of agricultural land
  • Trends in agro-realty
  • Agro-real estate investments - A post COVID 19 situation
  • Advantages of investing in agribusiness
  • Agricultural land for real estate development
  • Is it worth buying farmland in India?
  • Mistakes to avoid when buying farmland
  • Documents Required for Land Due Diligence
  • How to make your land a profitable investment?
  • Impact of COVID-19 on land tariffs
  • Can you build a country house on farmland?
  • Method for converting agricultural land into non-agricultural land
  • common questions

With increasing purchasing power, investors in India are now looking for innovative ideas to profit from their investments. One such way is to invest in agricultural land. While some investors hold this land as an asset, there is a portion of investors who take advantage of the growing organic fruit and vegetable market to supplement their income. Several specialists agree that investing in agriculture is a safe option to park your own resources, since the return on investment is usually higher than that of other investments and also provides security for investors' money. Also called agro-real estate, the market for these investors is growing, especially after the COVID-19 pandemic.

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

“While land is inexpensive compared to urban land, investors expect good returns in terms of resale value.

There is a growing demand for these plots of land, due to the scarcity and high price of land in cities, and urban investors buy it profitably on resale or use it for cultivation.

Ravi Gaurav, membro MCHI, explains that “Many investors find that purchasing agricultural land in neighboring city districts and rural Tier 1 and Tier 2 areas is the best investment alternative under prevailing market conditions. While farmland has always been considered one of the best long-term investment options, it is now in demand due to declining urban property markets.

See too:How to do due diligence for land purchase

For example, a plot of 120 m2 ingood luck nowCity area costs Rs 8-18 lakhs. In comparison, agricultural land can be purchased for Rs 1-8 lakhs per acre depending on the location and proximity to the city. The scenario is similar in most metropolitan cities.

However, buying farmland can be tricky.

Also read all about the pros and cons ofland investment

ROI on farmland

Investment returns on land purchases are highest in emerging and developing areas where there is potential for future infrastructure projects.Land rates along theLocation of Jewar Airportthey began, for example, to rise after the UP government announced that it would build the second airport in the national capital region in Noida.

Pradeep Mishra, Delhi-based real estate consultant, points out that it is good that the land is located in an area where a government project will be implemented or that is contemplated in the region's master plan. That piece of land will likely have a higher value in the future, he says.

See also: How your taxes are taxedfarm income?

Advantages of investing in agricultural land

an agricultural landinstallment can guarantee long-term income, if you are in an area where the government has planned infrastructure projects in the near future.

In addition, compensation, in the case of acquisition by the government, is greater for rural land than for urban land. Several state governments are also planning a land consortium policy, for areas where the city is expanding. If you take ownership under the land pool policy, you will get guaranteed regular returns from the pool.

See too: Commonly used land registration and revenue terms in India

As with all real estate developments, your asset does not depreciate over time, something that cannot be said for properties such as condominiums, apartments, etc. Over time, the quality of the building structure deteriorates, and the owner has to spend a considerable amount. sums of money, to maintain it. Investing in farmland not only saves you from spending all that money, it also gives you the option to use the land for different purposes in the future, within the limits of the law.

Disadvantages of buying farmland

Not everyone can buy:As per the law, you must be a farmer to own farmland in India. While most states have this ruling, some have simplified this prerequisite. You can also receive these lands, through donation or inheritance.

See too: Can an NRI buy or own property in India?

Conversion is not easy:You cannot convert fertile agricultural land into a residential area. The land must be a dry land, becauseconversion.

Law of the Land Roof:Several states restrict land ownership. So check how much can be bought in that state.

Not everyone can buy:NRIs, for example, cannot buy farmland in India.

Knowledge of local land laws and terminology is a must:Buying farmland can be extremely difficult if the buyer is not familiar with the land laws and local terminology used in the course of the transaction. Since land is a state matter, the laws are different in each state and not having in-depth knowledge will be a disadvantage considering the legalities involved in the process.

Knowledge of the placesland measurement unitsFor example, it is imperative to have a clear understanding and scope of the plot of land you are purchasing. Knowing how to convert these units into globally accepted units of measurement will also give you an idea of ​​the rate per square meter you will pay for the same.

If the unit of land measure used locally is, for example, gaj, the buyer must know the conversion from gaj to square feet/square meters. This would allow you to measure the price per square meter of land.

Advantages of buying farmlandDisadvantages of buying farmland
Long-term guaranteed returnsBuyer must be a farmer by tenure
Government compensation is higher if you buyland conversionIt is complicated
You can participate in the land pool policyFew states restrict farmland ownership

Risks in the purchase of land, lots

While the benefits of purchasing a lot or land are numerous, especially if it is agricultural land, there are also certain risks involved in such purchases. This is particularly true if the buyer is not very careful with the property documents. While states have made it easy for investors to find all land-related information online, great care must be taken to ensure that all documents are in place and that there are no forgeries.

Consult applicable laws

Evaluate other applicable laws regarding the transfer of rights to land,land ownership recordsand leases, if any. Often these parcels of farmland may not be transferable. Land can also be leased. In such cases, make sure that the tenants do not have any rights to the land and do not enter into the transaction until all these issues have been clarified.

See too: Legal Tips for Buying Farmland in India

Documents required for the purchase of agricultural land

Here is a list of the documents you need to buy farmland. This can vary by state:

  • 7/12 stretch
  • 6/12 excerpt
  • extract 8A
  • Land Income Invoice
  • Village map (Gaon map)
  • soil test report
  • original writing
  • assessment certificate
  • Record/deed of transfer, if any

Trends in agro-realty

Investors in this segment are buying converted farmland or buying land through resale. Although the value is still lower than that of land in the urban area, these investors become owners of land in the rural area. In this way they become eligible to buy more real farmland. Some people also buy a small residential property in a city and use that home address to buy farmland in the same city.

Farmland prices are expected to rise, especially around urban areas, due to the growing demand for affordable housing, which is only possible on the outskirts of metropolitan cities. Land in these areas is also in demand, for public and private projects, adds Gaurav. However, you will need to spend a substantial amount of money to buy the land and therefore you must cover all risks before closing the deal.

Agro-real estate investments - A post COVID 19 situation

There are several reasons and opportunities for agricultural real estate to grow in India. As most companies use a lot of chemicals in food products, especially perishables, people are trying to switch to organic products that contain less man-made chemicals. This is because these chemicals often have impacts on health and the environment. These concerns quickly grew amid the pandemic and people switched to healthier foods. Therefore, this offers many opportunities for organic farming, thus increasing investments in agricultural land. Market share for organic food and beverages is also expected to reach $327,600 by 2022 and people, even with moderate disposable personal income, will switch to consuming organic products and leading more sustainable lives. Therefore, investment in farmland has recently grown beyond expectations in India along with increasing opportunities for organic farming.

Advantages of investing in agribusiness

See below the advantages of investing in agricultural real estate:

  1. The final price of the land is lower, as the cost of its development is shared between the owners. Therefore, an investor has to pay a lower amount for these installments.
  2. Investment returns are higher than investing in stocks and shares, especially given the push towards organic farming and changing customer tastes and preferences. The total efforts and costs incurred by investors are less than any other investment, but they also have higher returns by comparison.
  3. Unlike apartments or houses, there are two main benefits to investing in farmland. Firstly, the costs incurred in its maintenance are avoided and, secondly, agricultural land does not depreciate. Therefore, investors should not worry about the share price falling over time.

Agricultural land for real estate development

Investors considering purchasing farmland in rural areas around the city may find this opportunity very lucrative as several state governments are opening farmland for housing development and industrial purposes. Recently, the Gujarat state government announced that property developers will be able to purchase farmland for affordable housing under the Gujarat Lease Act. Similarly, in Karnataka, the state government passed amendments to the land reform law that liberalized farmland ownership and increased the purchasing power of farmland by non-farmers. This could be just a start, and soon other states could open up farmland to housing development, resulting in more supply and perhaps cheaper housing.

all about himLand Acquisition Law

Is it worth buying farmland in India?

Investing in farmland is capital intensive. Therefore, investors must have a clear financial plan in mind before investing in farmland. Furthermore, it is imperative that investors maintain realistic expectations of their investments, as farmland returns are not as attractive as previously thought. Farmland is generally considered to be a good investment for individuals with high net worth and those with excessive income. For salaried or self-employed people living in cities, going through this whole process will be time consuming and tedious.

Mistakes to avoid when buying farmland

  • It is crucial to ensure that the importance of title deeds is taken into account. Check the land title before buying it. This is beneficial in two ways: first, it helps you avoid legal complications, and second, it helps you acquire land faster.
  • Buyers should be aware of farmland laws, especially if they belong to another state. Farmland is under the jurisdiction of the state and therefore the rules may vary between different states. It is essential to check existing laws before buying agricultural land.
  • Buyers must also physically check out the property and review its details. This is important for farmland as the buyer needs to know the soil quality and other similar characteristics.

Documents Required for Land Due Diligence

For this, the following documents are required:

  • Khata Certificates
  • award certificates
  • assessment certificate
  • transport certificate
  • tab book
  • mutation documents

How to make your land a profitable investment?

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

  1. Depending on the location, you can rent it out for community gardening.
  2. Start blogging about your most recent farming adventures.
  3. Set up a beehive farm and turn 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 pet-sitting/daycare services for your pet.
  7. Grow herbs and sell them online.
  8. Offer tours or classes on agriculture.
  9. Use the earth to generate solar energy.

Impact of COVID-19 on land tariffs

While real estate valuations remained hard hit, due to the coronavirus pandemic that erupted in late 2019, its impact on land values ​​has been limited. This is due to the scarcity of land in urbanized areas and also because this asset does not suffer depreciation.

Can you build a country house on farmland?

You cannot legally build a house on farmland. However, the rules may vary from state to state. For example, under the Karnataka Land Rent Act, farms can be built on agricultural land not exceeding 10% of the property size. In addition, the country house must be for own use only or it can be used for the purposes of residence of family members, dependents or employees. Farmers can use it for farming operations, tying up livestock or storing produce.

Method for converting agricultural land into non-agricultural land

No residential or commercial development can take place on agricultural land in India unless proper "land use change" takes place. Land use change can be obtained by filling in an application form and submitting it to the Commissioner of the Department of Land Revenue and all reasons for the conversion must be mentioned in the same.

The following documents must be submitted with the conversion request form:

  1. O originaldeed of saleor donation deed or sharing deed
  2. The mutation card
  3. certified survey map
  4. Last paid tax receipt
  5. proof of identification

In the case of converting agricultural land into non-agricultural land, a fee must be paid. Rates depend on the type of property and its location. Details such as the size of the land plot, existing mortgages, the type of crops and soil on the land, details of ownership of previous and current owners must be specified. Certified copies of these documents can be obtained from the Tahasildar office or the IRS. Unpaid fees must be paid on site and copies of proof of payment must be attached.

common questions

Is the sale of rural farmland taxable?

Agricultural land in rural areas is not considered a capital asset. That's why any gain from your sale is not taxable under Capital Gains.

How much building is allowed on farmland?

Agricultural land cannot be used for building properties. You must convert the land use from agricultural to residential before any construction.

How to convert agricultural land to non-agricultural land?

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

(With reports from Surbhi Gupta)

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