The pros and cons of buying agricultural land

Janesh Sharma, a 55-year-old senior marketing professional from Rajasthan, who mostly lived in the metros such as Delhi and Jaipur, recently invested in a three-acre agricultural land in his home city of Bikaner. Like Sharma, Nippun Sohanlal, who works with an IT services firm in Noida, invested in his second property – an agricultural land – on the outskirts of Bhopal, his home city.

Sharma and Sohanlal, represent a section of urban investors, who are now looking at the returns potential of agricultural land in the suburban or peripheral areas of big cities and state capitals.

“While the land I bought was inexpensive, in comparison to an urban land, I expect some healthy returns in terms of resale value,” says Sohanlal.

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, member of MCHI, explains that “Many investors feel that buying agricultural land in neighbouring districts of tier-1 and tier-2 cities and rural areas, is the best investment alternative in the prevalent 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 realty 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.

However, buying agricultural land can be tricky.

Potential ROI on agricultural land

The returns are higher in emerging and developing areas, where there is a possibility of upcoming infrastructure projects, such as a special economic zone or a highway. 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 future, he adds.

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 project in the near future.

Moreover, the compensation, in the case of acquisition by the government, is higher for rural land than that for an urban land. A number of state governments are also planning a land pooling policy, for areas where city is expanding. If you become an owner under the land pooling policy, you will get a guaranteed regular returns from the pool.

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 a 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.

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.

Trends

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.