Agricultural Land a Good Investment
So, why invest in agricultural land
As an investment, agricultural land has a lot going for it; with real estate prices highs in most urban areas, traditional property investors are looking at other viable options, these days buying agricultural land is good idea, may not weigh too heavy on your pocket.
The biggest attraction is the tax break.
Agricultural land can generate three main types of income – profits from the sale of crops grown on the land, rental income by letting out the land for contract farming, or income from any dwelling or house built on the agricultural land.
If you have losses on the crops grown, you can offset it against other agricultural income (but not against your overall income). In addition, agricultural land is free from the wealth tax which is typically levied on benefits derived from property.
Government is keen to spur investments in the farm sector, is looking at revamping the decade-old model Agriculture Produce Marketing Committee Act and carve out the provisions on contract farming into a separate law.
There also handsome profits to be made if a company or industrial house wants to buy agricultural land.
However, buying agricultural land is not an easy process like finalising an apartment. There are a host of issues, most importantly legal ones, to tackle before owning a piece of land.
Location and Size
Agricultural land is unlikely to be a small drive away from your home. Don’t consider the distance from your home as the primary concern while scouting for agricultural land. Access from road, availability of or accessibility to electricity and water for the site should be kept in mind.
The size of the land you buy is also important, we believe you should go for a large land parcel so that you can carry on agricultural activities in full swing, but you can always start with small land parcel and with time acquire more land.
Legal Issue to lookout for
Tempting as this investment is, for the average investor, buying agricultural land is a risky, if not impossible, business and should probably be avoided, without proper knowledge of land laws.
For a start, several states don’t allow individuals to buy agricultural land unless they have a background in farming, trying to get around that rule can be troublesome.
Ask good law firm to do due diligence with at least 30 years historical title check done and study state by-laws before buying agriculture land. Land should not have any encumbrance or litigation on it. Ensure that the title of the land is clear and check if the land has been properly acquired or not, whether the farmers have been rehabilitated and paid or not. There can be numerous problems.
Get your land demarcated clearly, and ensure that the seller gets the boundary wall or fencing done before the title is transferred. Prima facie, one needs to make sure that there is no land grabbing or the neighbour doesn’t extend the boundaries to your land.
Managing Your Land
You need to carefully plan how you are going to take care of the land. Living in a city and taking care of a land far away won’t be an easy task. Individuals who do get hold of some agricultural land can find it tough to manage these properties, especially if they or a trusted family member doesn’t live at or near the property. We suggest a viable solution of hiring contract farming firms that will manage the land for you. These contract farming firms may be on a profit-sharing basis. Prior to the acquisition of the land, a contract farming firm could do the testing of the soil to determine what crop can be grown.
Contract farming practices are careful and precise, scientific farming. It adopts cutting-edge techniques to ensure maximum productivity. It employs the use of precision farming – a method that helps to grow more crops by using fewer resources and reducing production costs.
Agriculture Ministry prepares contract farming act
The original blueprint laid out by NITI Aayog and approved by the Prime Minister’s Office had proposed liberal contract farming, direct purchase from farmers by private players, direct sale by farmers to consumers, single trader licence, single point levy of taxes and taking fruits and vegetables out of the mandi laws as part of agriculture marketing reforms that could unshackle the sector. This move by Govt. will help in getting better income for farmers and investment in agriculture sector.
Buying agricultural land is the most sensible thing to do, given the increasing demand for food grains, fruits and vegetables with ever increasing populations; though there are many issues involved. We at Fundrise will help you in land acquisition.