QUICKBYTE

� WITH THEINCREASEDFOCUS ON

CONTRACTFARMING ANDAVAILABILITY

OF“PROFESSIONAL

FARMMANAGERS”, IT

IS NOWPOSSIBLE TO

GAIN FROMCAPITAL

APPRECIATIONAS WELL 8-15%

ANNUALRETURNS FROM

OPERATIONS

expertspeak10pg.

[FAST FACT] Farmland investment can generate three to four times returns compared to other real estate investments

A T i m e s o f I n d i a P r e s e n t a t i o n , M U M B A I , JA N UA RY 1 5 , 2 0 1 1 T I M E S P R O P E RT Y

� INDIA HAS THESECOND LARGESTARABLE LAND IN THEWORLD

UPWARD GROWTH

During the last five years,there has been a vigorousinterest in investment intoagriculture land by indi-viduals, corporations and

countries. From China and Gulf nationsto Indian corporates - everyone is in-vesting heavily into agriculture land.

The reasons are compelling - per capi-ta availability of arable land has reduceddramatically, the world is going throughan unprecedented surge in demand ow-ing to growth of China and India, theweather patterns are becoming unpre-dictable, the world is at its lowest levelof food-grain stock, increasing use ofbiomass in fuel and there is increaseddemand of urban land. The future is go-ing to be hungry!

All this would lead to dramatic de-mand-supply mismatch and thereforeagriculture land investment is going toprovide superior returns. At the sametime, the prices of the commodities haveseen an unprecedented upward trendleading to attractive annual/ rental re-turns.

Investing in agricultural land on along-term basis provides a close rela-tionship between returns on agricul-tural land investments and the relatedmarkets. There are a lot of investmentstrategies available today and also newvehicles are being devised and used toenhance agricultural production in dif-ferent regions across the globe. Theseare tailored to react to local conditions:type of production, access to financial

networks and different sources of cap-ital, political/legal/governance issues,infrastructure challenges, environ-mental sustainability constrain andoverall risk and security challenges.

INDIAN SCENARIOIndia has the world’s second largest

arable land in the world, but in terms ofarable land per person, India is ranked104th in the world. Couple this with theexpected growth in population and ris-ing income (thereby leading to increasedemand for urban infrastructure andsuperior food), India is going to experi-ence the highest mismatch between landdemand and supply as well as food de-mand and supply! This in turn wouldlead to disproportionate increase in landprices and superior annual returns fromfarming activities.

Interestingly, while international playis likely to be more suitable for largecorporates (due to problems in consoli-dation and socio-political issues in In-dia), individuals stand to reap greaterbenefits in India. With the increased fo-cus on contract farming and availabili-ty of “Professional Farm Managers”, itis now possible to gain from capital ap-preciation as well 8-15% annual returnsfrom operations. This makes it the mostattractive asset class to invest into sincemost residential and commercial prop-erties provide returns from 2-7%. Addto that, the fact that both the capitalgains and farming income is exemptfrom income tax, a farmland investment

can generate three to four times of re-turns compared to other real estate in-vestments. And to top it all, you have afarm-house where you can spend yourweekends in the peace and quiet of ru-ral India.

THE MYTH - ONLY AGRICULTURISTS CAN OWN LAND IN INDIA

This is only partially true. Agricul-ture is a state subject and the laws varyfrom state to state. While states like Ma-harashtra and Gujarat restrict agricul-ture land ownership to “agriculturists”,there is no such restriction in states likeRajasthan and Madhya Pradesh.Whichever state you are planning to ac-quire land, just get a good lawyer to ad-vise you. There are ceiling restrictionsin most states and is also dependent onthe type of land you acquire. Despite theceiling and restrictions, a family of fourcan easily own land from 100 to 200 acres,which is a reasonable size.

LAND ACQUISITION PROCESS - THE PRACTICAL ASPECTS

The land acquisition process can bea time-consuming, tiring and riskyproposition. While the laws are gener-ally well-defined, the presence of a largenumber of touts and fraudsters makethe process cumbersome. Here are somesuggestions:

�� Hire a good broker: Find someonewho is trustworthy and organised.Define the parameters for landsearch and ask him to show you onlythe land which meets your criteria!And keep your eyes and ears open -do independent local search.

�� Get a good legal advisor: Ask himto provide a clear opinion on theland title and ask him to verify withpersonal visit to registrar's office.

�� Get a good farm managementcompany on board: You would notbe able to manage the farm yourself- don't try it unless you are 100% ded-icated to it. Get a company/ personwho will manage your farm beforeland acquisition itself - so that youmake the right choice of soil type,location, water requirements etc.

�� Give a notice in a local newspa-per: Don't worry about these smallcosts - even if it is not legally re-quired, ensure that you give the no-tice to know that there is no bankloan or private loan given againstthe land.

�� Meet the owner before closingthe deal: Don't just rely on thebroker! Preferably ask the sellerto come and meet you at yourplace.

�� Ensure that all documents aremutated in your favour: Ensurethat brokerage is paid only afterthis is completed.

�� Get land demarcation done:Leave some amount to be paid tothe seller.

�� Budget six months for the ac-quisition process: Don't be in ahurry - it takes time.

PORTFOLIO MANAGEMENT APPROACH

If you have a large agriculture landinvestment, use investment portfoliomanagement techniques to get an ideaabout the risk profiles and balance theinvestments. A farmland portfolioneeds to consider many parameters:

�� Undeveloped v/s developedland: Undeveloped land takeslonger to give returns but with sig-nificant rural infrastructure de-velopment will provide higher re-turns (though riskier also).

�� Permanent v/s Row Crop: Croptypes make a huge difference indesigning the portfolio. Crops likecorn, soy, wheat, barley, etc areknown to provide quick but un-predictable returns whereas per-manent crops like an apple orpomegranate orchard take a longtime to develop but provide con-sistent long term returns.

�� Land Escalation v/s Agricul-tural Returns: Good agriculturereturns are generated on land nearwater sources whereas land esca-lation is generated near road in-frastructure.

The long term fundamentals, im-provements in rural road infrastruc-ture, new approaches for productivi-ty improvements, availability of pro-fessionals (lawyers, brokers and farmmanagers) and the demand-supplymismatch make this an attractive classof investment. There has never beena better time to invest into agricultureland!

The author is CMD,INI Farms

REAP RICH RETURNS

As the year 2010 has ended, thereal estate sector at largeseemed to have witnessed sig-nificant recovery during the

year. Improved demand for housing spaceduring 2010 was witnessed across mostresidential markets mainly driven byeconomic recovery and positive marketsentiments, which also resulted in im-provement in supply during the year withmany markets witnessing the launch ofnew residential projects during the year.

The values across most micro-marketswitnessed a strong upward movementwhen compared to prices last year. Cap-ital values in select micro markets in thehigh end segment appreciated by over30% annually in comparison to the midsegment markets which witnessed ap-preciation between 8-14% in these cities.The mid end segment values, on the oth-er hand, have reached and in certain cas-es crossed peak levels for most marketswith an exception of a few locations inBangalore. They have therefore startedto witness stability in the last quarter of2010.

After witnessing a slowdown in de-mand and construction activity for mostpart of 2009, Mumbai's residential sectorwitnessed an improvement in demand in2010. When compared to values a yearago, Mumbai has witnessed the strongestrecovery (in the range of 5-15%) in mostmid range micro markets. The strongestgains were witnessed in Far North mi-cro market of - Andheri (W), Malad, Gore-gaon due to large end user and investordemand for mid range housing segment.Despite the buoyant demand andstrengthening economic sentiments, val-ues are expected to correct in most mi-cro markets especially Central Mumbai,North and Far- North Mumbai owing tolarge upcoming supply.

The rental market during the year alsowitnessed significant fluctuations. Selectlocations in Mumbai, Bangalore and Hy-derabad witnessed depreciation in rentalsby 3 to 15% over the last year. This maybe attributed to the increased availabil-ity of residential properties for leasingin these residential pockets. Chennai, onthe other hand, witnessed the highestrental and capital value appreciation dur-ing the year compared to other major

cities in the country mainly due to im-proved quality of new projects.

Shveta Jain, Director, Residential Ser-vices, Cushman & Wakefield India,"Amongst the major markets, NCR wit-nessed strong signs of recovery whencompared to markets like Bangalore andHyderabad which followed a relativelysteady recovery pattern."

Pune witnessed significant increase incapital and rental values in mid end andhigh end housing micro markets. Whencompared to one year ago values, Punehas witnessed a strong recovery of cap-ital values in both high and mid seg-ments. Wanowrie in the high end andWakad in the mid end have registered thehighest capital value appreciation dur-ing the year with an increase of 20% and12% respectively.

The rental market in Pune witnessedappreciation in the range of 0-15% forthe high segment and 0-4% for the midsegment. Baner registered the highestappreciation of 15% during the year. Thestrong recovery in these markets was wit-nessed due to the large end user and in-vestor demand. Improving market situ-ation could result in increased demandHowever; the capital values are likely toremain stable or under pressure due toample supply availability as well as pricesreaching peak levels.

The residential segment in select mi-cro markets of NCR witnessed unprece-dented growth during the year with sig-nificant increase in rental and capitalvalues. Capital values in Gurgaon arelikely to see minor correction in the lat-ter part of 2011 as it has already reachedhigh price points and will be witnessingample supply entering the market. How-ever, for the other locations, the valuesare likely to remain stable. Rentals wit-nessed moderate growth during the yearwith average annual appreciation rang-ing up to 20%, with the South Central re-gion registering highest appreciation.

Bangalore's residential market has toa large extent remained stable during2010. Capital values across all micro mar-kets however, recorded appreciation inthe range of 6-19% compared to the val-ues as at the end of 2009.

The residential market in Chennai wit-nessed significant growth in certain

residential pockets. The demand in highend markets like Boat Club and Poes Gar-den are expected to witness upward pres-sure. In the mid segment, Rajiv GandhiSalai and Adyar are expected to witnessslight fluctuations in the value.

Residential market in Hyderabad wit-nessed a rebound, albeit moderately, in2010 as compared to the previous year.Capital values in Kolkata witnessed up-ward movement during the year 2010 es-pecially in the mid segment.

In 2011, the overall residential acrossmajor cities of India is expected to con-tinue to witness growth in demand. De-spite the increasing demand and im-proving market sentiments, the largeavailable supply is expected to keep acheck on the capital values across cities.

Bangalore, Chennai and Hyderabadwhich are largely driven by end user de-mand supported by growing IT/ITES and

Automobile sector are expected to remainstrong in 2011 whereas markets whichhave witnessed strong recovery with cap-ital values reaching high prices pointsand significant supply entering the mar-ket like Gurgaon, Mumbai and Pune arelikely to see some correction in the com-ing year. Rental values are also expectedto witness some stabilization or slight ap-preciation in most of the micro marketsexcept Mumbai which unlike the othermarkets is likely to witness a downwardpressure.

Regulatory pressures are likely to im-pact small developers due to tough fi-nancing in the future which may resultin dumping stocks by them at lower priceand therefore putting little pressure onbig developers too.

Source: Cushman & Wakefield

PANKAJ KHANDELWAL shares light on what makes agricultural land a good asset classfor investment

‘Mumbaihas

witnessedthe

strongestrecovery

(in therange of 5-15%) in

most midrangemicro

markets

Most residential markets across India show positive market sentiment due to improved demand, says a recent report

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