Managed Farmlands: A new asset class for new age investors

March 24, 2021 4:03 PM

In the last few years a new asset class of managed farmlands has emerged and has quickly gained popularity.

A managed farmland is a system where individuals can put their money in a farm plot and then watch their assets grow without the hassles of having to manage it themselves.

India has witnessed growth & expansion in several real estate asset classes that are often categorised as alternative assets since they fall outside the more mainstream assets such as stocks, bonds & shares etc. Commercial real estate includes any property that primarily generates income or supports businesses, whereas residential properties are for the purpose of living but can also provide passive income opportunities.

In the last few years a new asset class of managed farmlands has emerged and has quickly gained popularity. Until recently there was a high barrier to entry for individual investors (from a non-farming background) to take advantage of the appreciating value of managed farmland assets.

The recently amended Karnataka Land Reforms Act, 1961 now permits any individual or institution from non-farming background to own agricultural land. This has opened up the market for investments in managed farmlands.

Managed farmlands as new-age asset class

Managed farmlands are nothing but farmlands that are owned by individuals or institutions but cared for by an experienced agency. Managed farmlands like any other land are tangible and immovable assets. However, they can be highly productive land parcels depending on the type of management, plantation and level of resource efficiency. The ever appreciating value of land coupled with cyclical crop or timber harvest provides a passive wealth creation opportunity for new-age investors.

As the demand for food and timber around the world continues to grow, farmland investments become more attractive and beneficial. In the face of continuous population growth and limited land space, farmers are pushed to do more with the same resources. Thus, regions with secure and adequate surface and groundwater resources will become increasingly valuable assets to hold. Together these factors will drive up the value of farmland and create opportunities for early new-age investors in global farmlands.

The Indian Real Estate Market

For a long time, real estate has been the most favoured of all asset classes in India. Since it has been such an attractive proposition, the real estate market is the second-highest employment generator in the country (after agriculture). It has ceaselessly attracted investors looking for passive income, and the rapid urbanization has added a huge impetus to the market. But what is also true is that the real estate market in India is collapsing. Thanks to flawed regulatory mechanisms, several real estate companies are in debt, and there exists an increasing inventory of unsold real estate projects. This situation, coupled with the Covid-19 pandemic, has resulted in people looking for different avenues of investments.

Why are Managed Farmlands more rewarding than Real Estate?

A managed farmland is a system where individuals can put their money in a farm plot and then watch their assets grow without the hassles of having to manage it themselves. In real estate, while the value of the land will surely appreciate, it remains just that: land. Where managed farmlands overcome real estate is with high-value timber plantations or cyclic crop produce. This means that a person investing in farmland not only benefits from the ever-appreciating value of their land, but also from the return on investment provided by the timber. This creates a passive income that also generously contributes to the environment by providing a green cover that keeps replenishing itself. The pandemic has made people prioritize health over anything else, and a vast expanse of greenery might be exactly what one might look to invest in the present times.

What are the benefits of owning Managed Farmlands?

There are several benefits to owning a managed farmland based on the principles of agroforestry. Trees increase the biodiversity and soil fertility of the region they are planted in. Forests can increase carbon storage through carbon sequestration, which is essential in order to reduce greenhouse gas emissions that enable climate change. Companion planting of mutually beneficial plant species leads to a rise in productivity as different species of plants and trees support each other symbiotically. The agroforestry landscape also provides plenty of scope to wildlife for foraging and breeding, which is vital for animals to adapt and survive.

Besides the environmental significance, managed farmlands also function as a much needed weekend getaway. The relaxed atmosphere in the bliss of nature provides a departure from the hustle and bustle of the city, and these eco-retreats come with a host of common amenities like cottages, gazebos, and camping sites that could enrich one’s holiday experience. If you are wondering where to look for managed farmlands, Hosachiguru, Holiday Valley, and Jain Farms are the one-stop destinations in Bangalore that cater to this promising asset class.

(By Srinath Setty, Co-Founder, Hosachiguru)

(Disclaimer: These are the author’s personal views. Readers are advised to consult their financial planner before making any investment)

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