Why Farmland Investment Is Booming In India?

Don’t wait to buy real estate. Buy real estate and wait. – Will Rogers

Farmland investment, once relegated to the realms of agriculture enthusiasts and seasoned farmers, is now gaining traction as a viable investment option in India. As investors seek avenues that offer both stability and growth, the allure of farmland investment becomes increasingly evident. In this article, we delve into the definition, importance, and burgeoning interest in farmland investment in India.

Table of Contents

Definition and Importance of Farmland Investment

Farmland, often overlooked in traditional investment portfolios, is emerging as a distinct asset class. Unlike stocks and bonds, farmland represents a tangible and productive asset. Investors acquire land for cultivation, providing a dual-purpose investment—capital appreciation and agricultural production.

The importance of farmland investment extends beyond financial gains. It is pivotal in ensuring food security, supporting agricultural practices, and fostering rural development. The intrinsic value of farmland lies not only in its potential returns but also in its contribution to the nation’s sustenance.

Overview of the Growing Interest in Farmland Investment in India

In recent years, there has been a palpable surge in interest among investors seeking alternative avenues.

According to moneycontrol.com, 30% of ultra-high-net-worth individuals chose to invest in farmhouses to park their money. This surge is attributed to a growing awareness of farmland’s unique advantages in a diversified investment portfolio.

Why Invest in Farmland?

A. Diversification Benefits

Diversifying investments is a fundamental strategy to mitigate risks and enhance returns. Farmland, with its low correlation to traditional asset classes, provides an excellent avenue for diversification. In comparison to stocks and bonds, farmland investments exhibit a lower volatility, offering a stabilizing effect on an investment portfolio.

An analysis of the last decade’s performance reveals that farmland investments have outperformed several traditional investment options.

The NSE Nifty, a benchmark stock index, recorded an average annual return of up to 13% from 2013 to 2023, while farmhouse investment gave significant returns in just a few years. For example, as per Sotheby’s International report, farmhouses in Delhi-NCR witnessed a yearly price hike of 20-25% in the last 1-2 years. Not only this but the agro realty sector is also expected to grow at a 34% CAGR to INR37,000 crores by 2025.

B. Stable Returns on Farmland Investments

Historical data showcases the stability inherent in farmland investments. Amid economic uncertainties, farmland values have proven to be resilient. During the 2008 global financial crisis, farmland values in India didn’t experience big losses, contrasting sharply with the significant losses witnessed in the stock market.

C. Rising Demand for Agricultural Products

The global and domestic demand for agricultural products is on an upward trajectory, presenting an opportune time for farmland investment.

Torfi Johannesson, Founder of Nordic Insights reports a 12% increase in global food demand by 2030. In India, the agriculture sector is undergoing a renaissance, with initiatives like ‘One Nation, One Market’ and ‘PM Kisan Yojana’ stimulating growth.

Farmland investment aligns seamlessly with this boom, offering investors a chance to capitalize on the rising demand for food and raw materials.

D. Using Online Platforms for Rentals

Apart from traditional farming practices, investors can explore alternative avenues for income generation from their farmland. AgroTourism and building resorts are innovative ways to monetize idle land. Additionally, platforms like Airbnb and Booking.com allow renting out farmhouses, generating supplementary income when the land is not in use.

Tax Benefits Of Investing in Farmlands

Investors in farmland enjoy a spectrum of tax benefits. The Income Tax Act of India offers deductions on agricultural income, and capital gains from the sale of agricultural land are subject to favorable tax treatment. Furthermore, expenses related to farm maintenance and improvement can be claimed as deductions, enhancing the overall tax efficiency of farmland investments.

How to Get Started With Farmland Investment?

1. Initial Steps For Investing in Farmland

A. Research and Due Diligence:

Thorough research on soil quality, climate conditions, and market trends is essential. Engaging with local agricultural experts and consulting experienced farmland investors can provide valuable insights.

B. Choosing the Right Location and Type of Farmland:

Understanding the regional demand for specific crops and the potential for value addition through alternative income streams like agrotourism is crucial in making informed investment decisions.

2. Financial Planning for Farmland Investment

A. Budgeting for Initial Investment:

Calculating the initial investment, including land acquisition, infrastructure development, and operational costs, is imperative. A realistic budget ensures a comprehensive financial plan.

B. Calculating Expected Returns and ROI:

Estimating potential returns based on historical performance, crop selection, and alternative income streams aids in gauging the profitability of the investment.

3. Legal Considerations

A. Understanding Land Laws and Regulations:

Navigating the legal landscape is paramount. Understanding land tenure, ownership rights, and compliance with local regulations ensures a smooth and lawful transaction.

B. Hiring Legal Advisors for Smooth Transactions:

Engaging legal advisors specializing in real estate and agriculture law provides an added layer of protection, ensuring all transactions adhere to legal norms.

Conclusion

In conclusion, farmland investment is booming in India and presents a lucrative opportunity for those seeking a diversified, stable, and growth-oriented portfolio. With the confluence of government support, technological advancements, and changing consumer preferences, the prospects for farmland investment have never been more promising. As you embark on this journey, remember the words of Will Rogers, “Don’t wait to buy real estate. Buy real estate and wait.” Farmland, with its intrinsic value and multifaceted opportunities, stands as a testament to this timeless wisdom. Explore the bountiful fields of farmland investment, and sow the seeds of financial prosperity.

Investment Opportunity: Satgarhi Farms by Aashiyana Greens