Rajasthan, Andhra Pradesh and Karnataka are set to directly or indirectly guarantee property titles in urban areas in an effort to make property transactions easier and reduce or prevent most such deals from landing up before the courts.
The move will remove uncertainty surrounding more than half the land deals that happen in India because most property owners do not have a clear title to their holding. It will make it easier for foreign real estate funds to invest in properties here. And it will also provide a boost to the real estate sector and industry in general because unclear titles present a hurdle to efforts to acquire land. According to Anil Baijal, the country’s former urban development secretary, six out of every 10 land transactions in the country end up before the courts.
Efforts by the three states to reform the titling process are prompted by the fact that titling has been mentioned as a reform states have to undertake to be eligible for funds under the Centre’s Jawaharlal Nehru National Urban Renewal Mission (JNNURM). This Rs50,000 crore programme provides grants of up to 90% of the cost of urban development projects in 63 cities across the country.
The government of Rajasthan hopes to hand out state-guaranteed titles starting December. And the Andhra Pradesh government has already initiated a pilot project in the Nizamabad district where it is currently mapping land holdings and establishing their ownership. Once this is done, the government will provide title documents. “We hope to have the entire state covered by 2012,” said Vinod K. Agrawal, commissioner (survey and land?records),?Andhra Pradesh.
The state-guaranteed titles will replace what are called “presumptive” titles. These include receipts showing a property owner has paid tax, on account of his ownership of the specified property to the government, or sale deeds that essentially state that a government authority has witnessed a sale of property. Only the courts can establish titles, and the country’s legal system is choked with pending cases.
The Rajasthan government’s efforts at providing guaranteed titles began in 2005 in Jaipur. The government is currently drafting legislation that will allow it to provide “freehold” ownership of property to owners. Currently, the state owns all property, and “owners” just have leases. A “freehold” gives owners permanent tenure of the property and the right to dispose it.
“The pilot will also be extended (from Jaipur) to 11 cities after which we will roll-out to the rest of the state,” said Iqbal Khan, deputy commissioner for the Jaipur Development Authority. “We are making this voluntary for now and it will only apply for residential properties.”
The Rajasthan project, called CLEAR (complete land evaluation and administration of records), is being administered by the National Securities Depository Ltd (NSDL), the agency which led the move to dematerialize shares, or convert them into electronic form. Rajasthan and Andhra Pradesh will only provide state-guaranteed titles to properties that are not disputed. However, both states are experimenting with a system that will allow them to deal with disputed properties also.
The government of Karnataka has decided that it will not directly offer guarantees.
Instead, it has set up the Bangalore Property Depository, an entity where existing ownership records can be converted into electronic form. It is also offering a discount of 0.5 percentage points (5% instead of 5.5%) on stamp duties to those owners willing to take out a title insurance policy, provided by a general insurance company. The state hopes that the combination of the two will result in titles that are almost as strong as state-guaranteed ones.
“We are not guaranteeing titles, but providing incentives for those willing to take title insurance,” said S.M. Jaamdar, principal secretary (revenue), Karnataka. Title insurance protects land owners, lenders, and buyers against ownership disputes.
M. Ramachandran, secretary at the Union urban development ministry, says computerized land records and guaranteed state titling are akin to the dematerialization of shares that happened in the 1990s, resulting in an increase in the volume of transactions.
According to consultant McKinsey & Co., guaranteeing private ownership will improve valuation of properties and could increase the country’s national income by as much as 1.3%; India’s national income at current prices at the end of the first quarter of 2007-08 was Rs47.222 trillion.
Executives in the real estate industry say state-guaranteed titles will reduce the risk in property transactions and stabilize prices in the long term because more properties will be available for sale. “In the short term, however, it could drive prices higher, as buyers flock to properties that have (a) clean title...,” said Ramani Shastri, chairman and managing director of Bangalore-based Sterling Developers Pvt. Ltd, a real estate firm, and a vice-president of the Confederation of Real Estate Developers’ Association of India, an industry body.
(This is the first in a two-part series on urban land reforms in India.)