Farmland has Outperformed Investments In Indian Urban Property..

Investor interest in farmland can be traced back to two factors. First, says Gaurav Jain, a real estate professional who worked with Emaar and DLF Ltd before setting up his own consultancy, Samyak Properties & Infrastructure, liberalisation boosted job creation and incomes, and increased demand for housing.

Second, as Chakravorty writes, till the mid-1990s, almost all house purchases were in cash. Around 2000, the housing market in credit began to grow. That, he writes, "brought very large numbers of new housing consumers into the market".

This has pushed up land prices.

Indian cities, notes Chakravorty, wary of congestion, have kept floor space index (FSI) - a measure of how much can be built on a plot of land - low.

Unhappy with the combination of limited (and costly) undeveloped space and low FSI in cities, builders began looking towards the periphery.

So did buyers. "The rule of thumb used in much of the developed world is that a family cannot afford a home whose price is three to four times the family's annual income," writes Chakravorty.

In cities such Mumbai, he notes, a family with a per capita income of Rs. 60,000 will take 100 years to buy a 800 square feet house. As both builders & buyers move to the periphery, and beyond it to towns and villages, their demand is pushing up prices of farmland at a rate faster than traditional financial and real assets..

Farmland has even outperformed investments in urban property. Says Mr. Pran Khanna, a Delhi-based consultant to companies: "A Rs 50 crore investment in a south Delhi house will climb to maybe Rs. 55 crore in 5 years."

In contrast, as Mardi and Vadicherla show, returns can be exponential.

Prices of agricultural land have risen by anywhere between 3 fold and 100 fold. This is the beginning of a new phase in India’s agricultural land markets Prices of agricultural land have risen by anywhere between 3 fold and 100 fold. This is the beginning of a new phase in India’s agricultural land markets

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Pure agricultural land, adds Jain, appreciates faster. "It has fewer encumbrances- like pre-existing structures." This is resulting in land being bought and left fallow.

This has created a second set of buyers: investors. The average buyer, says Jain, is "someone who is over 40, kids educated, has a house and is wondering what to do with surplus cash.

" Seeing the escalation in land values in peri-urban areas, people began buying land even far from cities, reasoning they would make a killing once the city expanded.

Similarly, businessmen, in small towns such as Suryapet, knowing they could not buy land near big cities, began buying land in their own peripheries. Their bet: rates can only rise - as population rises, land will only get more scarce.

These buyers are finding willing sellers in farmers.

Src: ET

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