Benefits and Drawbacks of Buying Agricultural Land

Investing in Agricultural Land

Jainesh Sharma, a 55-year-old senior marketing professional who has lived mostly in metropolitan cities like Delhi and Jaipur, recently invested in three acres of agricultural land in his hometown of Bikaner. Similarly, Nipun Sohanlal, who works for an IT services company in Noida, invested in a second property – agricultural land – in the suburbs of his hometown, Bhopal.

Representing Urban Investors

Sharma and Sohanlal represent a segment of urban investors who are now looking at the revenue potential of agricultural land in the suburbs or outskirts of major cities and state capitals. "Though the land I purchased was inexpensive compared to urban land, I expect a healthy return based on its resale value," says Sohanlal.

Rising Demand for Land

Due to the shortage of land and high prices in cities, the demand for such plots is increasing. Urban investors buy them either to profit from resale or to use them for cultivation. Ravi Kaura, a member of MCHI, explains, “Many investors believe that buying agricultural land in Tier-1 and Tier-2 cities and rural areas is a better investment option in the current market conditions.”

Agricultural Land as a Long-term Investment

Although agricultural land has always been considered one of the best long-term investment options, it is now sought after due to the decline in urban realty markets. For instance, in the urban area of Lucknow, a plot of 120 square yards costs between ₹18-28 lakhs, whereas agricultural land can be bought for ₹10-20 lakhs per acre, depending on the location and proximity to the city. This trend is similar in most metro cities.

Potential ROI in Agricultural Land

Investing in agricultural land offers potential ROI, especially in areas with upcoming infrastructure projects like special economic zones or highways. Real estate advisor Pradeep Mishra from Delhi points out, "If the land is located in an area where government projects are planned or included in the region’s major development plan, it is good." Such land has the potential to appreciate significantly in the future.

Benefits of Investing in Agricultural Land

Owning agricultural land can guarantee long-term income, especially if the government plans some infrastructure projects in the future. Moreover, compensation from the government, if the land is acquired, is higher for rural land compared to urban land. Many state governments have land pooling policies for expanding city areas. As a land pooling policy participant, you will receive regular income from the pool.

Drawbacks of Investing in Agricultural Land

1. Not Everyone Can Buy: Legally, you must be a farmer to own agricultural land in India. While most states have this regulation, some have relaxed this precondition. You can acquire such land through inheritance or as a gift.

2. Conversion is Difficult: You cannot easily convert fertile agricultural land into residential property. The land must be classified as barren for conversion.

3. Land Ceiling Act: Many states have laws limiting land ownership. Verify how much land you can purchase in that state.

4. NRI Restrictions: NRIs cannot buy agricultural land in India.

Legal Checks

Evaluate applicable laws, ownership records, and leases if any, for the land. Ensure there are no tenants with rights to the land and only proceed with the transaction once all such issues are resolved.

Investment Strategies

Investors often buy dry, converted rural land or acquire land through resale. Although the value may still be lower than urban plots, these investors qualify to buy real agricultural land. Some buy small residential properties in a village and use that address to purchase agricultural land within the same village.

Conclusion

While the need for affordable housing is increasing, particularly in the suburbs of metro cities, the prices of agricultural land in urban areas are also expected to rise. In such regions, land is in demand for public and private projects. However, you need to spend a significant amount to buy land, so assess all risks before entering into an agreement.