Any residential property, even with all legal safeguards apparently in place, is ultimately built on land. One cannot automatically assume that this land did not have previous owners. While title insurance does not correct any title faults and past claims, it helps cover litigation cost to mitigate further loss in the case of property transactions where the sanctity of the title comes into question. In other words it offers protection against loss arising from such legal proceedings - a shield that protects the owner as long as he or his heirs remain in ownership.
The concept of title insurance was first introduced in the United States, in response to the confusions that prevailed in a conveyancing system based on registration of deeds instead of property titles. It was felt that the availability of an insurance policy was a good means to assure the credibility and legality of a property's title.
While insurance of buildings has been compulsory since 2001 as per state governments' byelaws, this has not been taken seriously so far. As a matter of fact, title insurance has been tried in India by foreign insurance companies over the past five years, but the concept seems to have failed. Companies such as First American made serious but unsuccessful efforts to introduce this concept in 2005-2007.
Meanwhile, almost 95% of India's housing societies are not insured. If and when the Urban Development Ministry finally incorporates title insurance in the Real Estate Management Bill, it will make ownership of built-up and landed property far more credible and secure. This will lead to renewed confidence among buyers and will definitely impact the real estate market favourably. When a proper bill is passed on title insurance, buyers will be assured that the property under consideration is safe for purchase. He or she will no longer have to depend solely on the developer's assurances about the title's legal sanctity.
For all its benefits, title insurance does not cover the 'risk of eminent domain' - meaning that the government still holds rights that can nullify its effects in certain cases. For example, a title insurance would have been ineffective against the government handing back land parcels to farmers in Greater Noida. However, such cases are exceptions. There would certainly be greater comfort levels in buying land and built-up projects in general if title insurance is in place.
In other words, property transactions would become more transparent and, therefore, speedier. Obviously, developers can only benefit from such a scenario. Lack of transparency has been one of the primary concerns of potential buyers in many areas notorious for defective titles. In other words, there is a direct link between title insurance and the marketability of a property.
The passing of such a bill can also help attract more FDI in real estate, which has been seriously impacted in recent times. One of the primary reasons for the slowdown in foreign fund flows into Indian real estate is that there is a greater risk factor involved for outside players when the assurance of protected land and property titles does not exist. There will be increased interest in the sector once we have such a framework in place.
The author is Managing Director - Chennai & Coimbatore, Jones Lang LaSalle India.
In a country whose real estate market has been grappling with lack of transparency for decades, title insurance is definitely a concept whose time has come.
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