While aiming to facilitate the growth and promotion of a healthy, transparent, efficient and competitive real estate sector, the Real Estate (Regulation & Development) Act 2016, also known as Real Estate Act or RERA, goes beyond tried-and-tested measures to protect the interest of homeowners.

By introducing title insurance into play, the Act ensures that home buyers do not suffer from any financial loss in future due to a defective title of the land. This may be a new idea to India, but several countries, including the U.S., already have this concept in place.

Even though the Government of India in August 2008 launched the Digital India Land Records Modernization Programme (DILRMP) to facilitate management of land records, the risk of faulty property disputes still remains high. Having a title insurance safeguards the property owner against any loss or damage due to liens, mortgages or any such encumbrances in the title to the property.

What is title insurance?

As an insurance product, this protects the current owner from past claims and title faults arising out of legal proceedings. Title insurance provides an additional layer of protection and gives an indefeasible right to the property owner whereby an insurance agency undertakes the burden of any financial risks that may crop up out of defects in title deeds, court orders and encumbrances in future.

What does RERA say about title insurance?

RERA mandates that while registering a real estate project with the authority, every promoter shall enclose the documents detailing he/she has a legal title to the land on which the development is proposed along with legally valid documents with authentication of such title, if such land is owned by another person, and that the land is free from all encumbrances.

The Act also mentions that the promoter shall obtain all such insurances as may be notified by the appropriate Government, including but not limited to insurance in respect of — (a) title of the land and building as a part of the real estate project; and (b) construction of the real estate project.

Needless to say, the Act states so to ensure that the promoter shall compensate the allottees in the case of any loss due to the defective title of the land on which the project is being developed or has been developed. It also ensures that the proposed project will not face delays due to title disputes and hence will be delivered on time.

Favourable for real estate:

When buyers will be assured that the property they are buying/investing is absolutely safe, there will be renewed confidence among prospective homeowners and that will definitely impact the real estate market favourably.

With clear property titles, real estate transactions will be more transparent and speedier. This will be of immense benefit for developers as banks will be encouraged to approve loans for projects wherein property title is clean.

A transparent real estate where land is protected through insured property titles may attract more FDI (Foreign Direct Investment) in the sector. Risk-averse foreign investors generally avoid investment options wherein the assurance of protected land and property titles does not exist.

In June 2016, Insurance Regulatory and Development Authority of India (IRDAI) constituted a seven-member working group to study the scope of title insurance in the Indian market. The group was entrusted with the task of evaluating the need for such a product in India vis-à-vis the existing title insurance products and practices globally. It would also suggest the design of the product and its framework and long-term sustainability.

Certainly, as and when IRDAI gives its nod to title insurance, it will be a win-win situation for all the stakeholders.