Markets shaky? This CIO pitches a farmland-backed play India hasn't considered yet

With markets in turmoil and investors searching for safer, uncorrelated assets, could a new farmland-based model hold answers for India? Sachin J, CIO at SUKVI Ventures, has reignited the conversation with his post on Agricultural (Farmland) REITs, calling them a potential avenue for stable, tax-efficient income — if explored seriously by policymakers.

Drawing from U.S. investment portfolios, Sachin writes, "I was going through portfolios of few American funds and came across this asset class called as Farmland REIT's. These REITs basically buy Agricultural Land from Farmers or Landowners and lease it to Farmers or Operate themselves by hiring farmers on their payroll."

For investors, Sachin sees agricultural REITs as an uncorrelated asset class, offering returns that depend on monsoons and farmland productivity, rather than market cycles. "These would be independent on the state of markets and economy to some extent, thereby offering diversification in true sense," he notes.

Beyond income, Sachin argues these REITs could address the persistent issue of fragmented farmland. "REITs typically would buy large land parcels or buy all of small land parcels to conduct farming on a large scale," he explains. With the ability to bring in advanced farming tools, machinery, and irrigation, these REITs could enhance productivity and shift crop price risks from individual farmers to corporates.

He also highlights tax efficiency as a potential draw: "As agricultural income is tax-free in India, the distribution from these REITs should ideally be tax-free."

India's regulatory environment does not currently allow for Agricultural REITs. Under SEBI’s Real Estate Investment Trusts (REIT) Regulations, 2014, REITs are prohibited from investing in agricultural or vacant land, limiting the scope for such a model. Existing REITs in India are restricted to completed, revenue-generating commercial assets like office spaces and malls.

Even if regulatory hurdles are addressed, market awareness and acceptance remain low. Traditional REITs are still gaining traction among Indian retail investors, and an agriculture-focused REIT could face greater resistance. The market itself also poses risks. Agricultural markets are volatile, influenced by commodity price swings, weather events, and climate change — all of which could impact returns.

Operationally, maintaining sustainable payouts could be challenging, as global farmland REITs struggle with high operational costs. Integrating technology for efficiency, though beneficial, could be costly and complex to implement at scale.

Policy stability is another concern. Any shifts in agricultural policy or tax regulations could alter the attractiveness of these REITs, just as traditional REITs face uncertainties around taxation and dividend payouts.

Despite these hurdles, Sachin believes the model is worth exploring. "I believe Agricultural REITs can truly formalize agriculture in India!" he concludes. Whether policymakers take up this idea remains to be seen — but amid ongoing market volatility, it raises critical questions about where investors can turn for steady, diversified returns.