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Land acquisition in India risky for foreign investors

December 23, 2010 12:02 IST
Foreign investors consider land acquisition in India as a high risk transaction because there is no comfort of title insurance to protect their financial interest in immovable properties, according to an expert agency.

US's largest title insurance provider, Fidelity National Financial Ltd, has said that foreign investors feel no comfort of title insurance to protect their financial interest in immovable property against loss due to title defects, liens or other matters.

"Title insurance could potentially be one of the largest growth drivers in the real estate sector in years to come," Fidelity National Financial India Country Head Sameer Dhanrajani told PTI.

"Based on a study years ago by a leading consulting firm, it is estimated that the economic gains from titling reforms could be 1-2 per cent of India's GDP. Based on the World Development Indicators, this could potentially be worth $15-25 billion for India," he said.

The firm said that the title insurance is a new concept to India. "It has been extensively used in both residential and commercial real estate transactions in the US and Fidelity National Financial (FNF) is the largest title insurance provider and accounts for about 45 per cent of the US market share," Dhanrajani said.

"The owner would insure the property against past liens or encumbrances or CC&Rs (conditions covenants and restrictions) that could potentially cause the loss of title for the property owner. The policy would be in effect till the time the property owner owns the property," he stated.

The Lender Policy would insure the lender against past liens or encumbrances or CC&Rs (conditions covenants and restrictions) that could potentially cause the loss of title to the lender.

The lender policy would be valid till the mortgage or home loan is satisfied or paid completely or till the property is sold to a new owner or refinanced, Dhanarajani said.

He said that the title insurance does not protect the lender or the property owner against land acquisitions by the government agencies against the owner's wish.

"It also does not cover loss of title arising due to acquisitions due to oil, natural gas or other minerals found on the property or acquisition due to road widening among others. These form a part of the exceptions in the title insurance policy," the official added. In India, the first step to creating searchable land records has begun with The Land Titling Act 2010.

"States such as West Bengal, Andhra Pradesh (AP), Karnataka, Chhattisgarh and Kerala have begun the digitisation of the land records," he said adding that once the online digitised data is available, Title Insurance Companies would be able to search for a specific property and create a title chain that shows the history of ownership of the property.

This would help identify the property and the current owner. Additionally the title company would also search the land records and would identify any open liens or encumbrances and a commitment report that shows this would be provided," he said adding that once the open items are cleared, the buyer would register the property in the village office or tehsildars office and the policy would be issued.

There are no constraints on the minimum or maximum area that could be insured and agricultural lands would generally be classified under rural and could also be insured, he said.

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