Guest Author: Mr. Vijay Chaudhary, Chairman of Ram Rattan Group and Dalmia Ram Rattan
25 January 2024, New Delhi: Over the years, farmland has quietly played the role of the reliable friend in the world of stable assets. For investors, purchasing farmland is like adding a pinch of spice to their portfolios, steering clear of the unpredictable stock market rollercoaster and 2024 is an excellent period to invest in this sector, with reports indicating that, over the last three decades, investment in agricultural land has offered the best returns at the lowest risk.
So, how can you undertake this future-ready investment? You can add farmland to your portfolio through three distinct models of investment, including direct ownership, farmland funds, and real estate investment trusts (REITs). Let us take a look at each of these, to arrive at the option which is the best for your requirements.
Decoding Direct Ownership
Direct ownership of agricultural land comes with unique considerations. Firstly, the returns on investment are notably higher in emerging areas, particularly where upcoming infrastructure projects are in the pipeline. For instance, land rates in Naugaon, Alwar, have seen an uptick following the announcement of the Delhi-Mumbai expressway. The advantages of direct ownership extend to guaranteed long-term returns, especially in areas earmarked for government infrastructure projects, while the absence of depreciation distinguishes agricultural land from traditional properties like flats and apartments. In regions designated for government projects, investors benefit from increased demand and appreciation in land value over time, contributing to a stable and profitable investment. Further, the resilience of agricultural land to depreciation ensures that investors maintain the intrinsic value of their assets, ensuring a secure and enduring investment when compared with properties subject to wear and tear.
Understanding Farmland Funds
Managed farmlands or farmland funds represent a unique asset class where individuals or organisations own agricultural lands, but they are professionally managed by firms. This model, categorised as an alternative asset, has gained popularity among new-age investors seeking portfolio diversification. Managed farmland investments, offering tax-free returns, provide a hedge against inflation for Indian citizens. With returns ranging from 11% to 17% per annum, these investments yield higher tax-exempt returns compared to traditional assets like fixed deposits. Moreover, the risk is mitigated through diversification across various agricultural projects in India, protecting against region-specific challenges.
The REITs Equation
Investors seeking farm exposure can also turn to real estate investment trusts (REITs) specializing in agriculture. These REITs acquire and lease farmland, providing diversification across multiple farms and regions. Unlike direct farm purchases, shares in agricultural REITs offer enhanced liquidity as they can be readily traded on stock exchanges. The minimum investment, equivalent to one REIT share, minimizes the cash required for farmland investment, thus allowing investors to simulate farm ownership, and enjoy the benefits of diverse holdings and liquidity without the need for the substantial capital typically associated with direct farmland investment.
Farmland investments shine as a stable alternative in 2024, providing consistent returns and low risk. With three viable models—direct ownership, farmland funds, and agricultural REITs—investors can customise their portfolios and chart a sustainable and successful investment journey revolving around agricultural land. Indeed, as an enduring asset class, farmland beckons investors, offering a fertile ground to harvest profits and navigate market uncertainties with resilience.
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