Government to test land-deed guarantee

If the plan is implemented on a broader scale—and there are significant hurdles ahead—the government could potentially eliminate what many see as the single biggest risk associated with property deals in the country.

The government guarantees are being considered for two pilot projects—one in Belgaum, Karnataka, that has been under way since 2005, and the second one in Jaipur that has just begun.

Any success in creating transparency in land ownership coupled with a government guarantee is likely to give a huge boost to property prices. One McKinsey & Co. estimate suggests that government guarantees on ownership of private land could increase property prices by 1.3% of the country’s national income, some Rs36,000 crore based on 2006-07 figures.

If successful, it could also contribute significantly to reducing an overwhelming proportion of civil cases clogging the court system, many involving property disputes.

“Land reform and specifically guaranteed titles are a very important milestone under the Jawaharlal Nehru National Urban Renewal Mission," said M. Rajamani, joint secretary at the Union urban development ministry and project director of the mission. “We are hoping to install some sort of guaranteed titling for Indian conditions, based on the Australian Torrens titling system," he added.

The Torrens title system was introduced in South Australia in 1858, formulated by its then colonial premier, Sir Robert Torrens. It has since become pervasive in many Commonwealth nations as well as other countries. Torrens title is a system of land title where a register of land holdings, maintained by the state, guarantees title to those included in the register.

In India, unlike in the West, ownership is not explicit in the property deed. It is only presumed. What goes in the name of title deeds is actually only proof that a transaction involving the property had taken place and the government has derived land revenue from it.

Now, the government proposes to ascertain the ownership of land and then stand guarantor to the deed. In other words, if a problem does crop up over ownership, the government will promise to make good on any loss.

“If you take away the risk, the land would sell for that much more. Ultimately it is a very good thing," said Vincent Lottefier, country head of real estate consultancy Jones Lang LaSalle. “It will bring maturity and transparency to the market," he said.

While agreeing that guaranteeing title would be great, one real estate expert said the question remains as to how the government will go about it.

“Even when we buy property, we have to go through months of due diligence because the records are kept at the local tehsildar level. Imagine doing this across the country," said Revathi Ashok, director of finance at TCI Ventures, a real estate joint venture between ICICI Venture and Tishman Speyers, a US real estate company.

“From a developer’s point of view, it would be phenomenal if the government would do it," Ashok said. “But it could concentrate power in the hands of a single individual. The key is how they go about collecting the data and verifying ownership before guaranteeing title."

Talk of land reform and providing some form of state guarantee to titles has been around ever since 1987 when Prime Minister Manmohan Singh, then deputy chairman of the Planning Commission, appointed a one-man committee to study the feasibility of state-guaranteed titles.

However, the proposal has now moved forward after it was added as one of the pre-conditions to the urban renewal mission, a scheme to help cities develop infrastructure by providing Central grants. States, such as Maharashtra and Andhra Pradesh, have previously announced state-level initiatives to guarantee title.

In Belgaum, for instance, the state’s revenue department set about updating its land records in 2005—records that were based on a land survey taken as far back as 1921.

“We have mapped about 1,200 parcels of land in some 160 acres," said a former revenue department official who headed the Belgaum project. The government then hopes to trace and establish ownership of these parcels of land before guaranteeing title.

Many believe that government guarantees, if they come to pass, will prove to be a boon to courts. “I would estimate that over 90% of the civil cases in this country’s court system relate to property disputes," said Swati Ramanathan, co-founder of non-profit Janaagraha, who is anchoring the Jaipur pilot that is expected to be completed in the next couple of months.

Land disputes are common primarily because ownership is difficult to prove. Unlike vehicle registrations, for example, which guarantee ownership, land title only proves that the buyer has paid necessary stamp duty and registration fees for the transaction.

Ramanathan says that the system is an offshoot of the British rule. “They weren’t interested in establishing ownership. All they cared about was that revenue was collected for every transaction."

Under options now being considered, “the government may, at some point, consider setting up a fund which it will use to make payments in case of title fraud. We haven’t finalized a model yet. What we do depends on what comes out of the pilots", said Rajamani.

The task of ascertaining ownership will be “humungous", concedes former urban development secretary Anil Baijal, who initiated the Belgaum project. Another wrinkle: because land is a state subject, the Centre cannot mandate a law that will apply across the country.

“The government should be able to certify title. In the case of a mistake in certification, the Centre should pay the buyer. Underwriters and insurers could provide this scheme," adds Baijal, noting that the Centre can offer incentives for states to take on the role of offering ownership guarantees.

Prashant Gopal contributed to this story

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