Property ownership was supposed to be an asset, but the ugly truth is that it has become a liability compared to other asset classes
I often have a running joke that I tell people at parties (funnily I stopped receiving invites after telling this joke). It goes like this “if you or someone that you know doesn’t have a property dispute - you are not Indian.” With 67% of court cases (civil) dealing with property disputes, it most certainly is not a laughing matter. Real Estate was supposed to be an asset but the ugly truth is that it has become a liability in comparison with other asset classes. With 7.2 million court cases blocking the development of $200 billion (estimated) worth of real estate, one has to be disappointed about society’s lack of will and political resolve to solve a long-standing problem of my countrymen. The genesis for all these issues is that India has a presumptive ownership system unlike the UK and many other developed nations. In UK and Singapore, there is a conclusive titling system which means that the government verifies the seller as property prior to clearing the transaction. And because the government has verified the seller as the owner, the respective agency provides a single title deed to the purchaser. In the Indian “Presumptive Ownership” model, the government takes no responsibility and it is up to the purchaser to verify if the seller is actually the owner. In fact, many people erroneously assume that a Sales Deed is a title. According to our legal framework, it is only a record of parties that engaged in a transaction. Due to this system, a property owner must use a collection of documents to show proof of ownership strength since there is no single title deed as in countries where the government takes responsibility for due diligence. But I digress, let us get to the more practical task at hand, should I buy property knowing all these sceptical facts? Absolutely, land is not being manufactured every day and technology is unlikely to change that in the near future. I’ve yet to read a scientific or economic paper discussing the downward movement in land prices once Elon Musk colonizes Mars.
With all of that said, one must bear in mind the importance of conducting a deep dive into property records prior to making a purchase. The first step in this process is to retrieve an Encumbrance certificate (EC).In some states, this is also called a Non-encumbrance certificate (don’t ask me - ask the government). An EC displays the current owner of the property as well as the transaction chain going back 20-25 years in some states. Essentially think of the EC as a skeleton providing guidance on all the documents to be collected and provided for a legal opinion. In most states, an EC can be retrieved using a Survey number attached to the property. At Landeed, we make ECs instantly available on your smartphone through our app. However, for those in the more adventurous and masochistic phase of life, they can visit the local Sub Registrar Office (SRO) for an expedition of a lifetime to retrieve the EC. Who doesn’t want to stand in long lines in the hot sun? Raise your hand.
If the reader believes that the procedure listed above is enough to ensure that the property diligence is complete, I hate to be the bearer of bad news. A prospective property purchaser must also visit the revenue office to ensure property tax receipts, electricity bills and water bills are also under the same owner's name. Apparently, our government departments value their independence and therefore have decided to operate siloed systems without integrating to maintain common ownership profiles. Say what you want but in this system, at least no one can hack one department to change property ownership records - I think.
Once the pilgrimage to the holy departments of registration and revenue is complete, we are now headed to the lawyers' office to get a legal opinion after submitting all necessary documents requested. Legal opinion is mandatory for property transactions and even loans from financial institutions. After a legal opinion is obtained and the property purchase is complete, I wish I can inform the dear reader that his magnificent voyage is complete; it is not. A legal opinion is very similar to the “Letter of Comfort” that the RBI has recently banned. While the lawyer stating that the property title is clean is one thing, he/she will not protect you against future litigation. Gotta love the lawyers, right? For that reason and to keep out stray animals and humans, it is important to fence the property, put up a name board and if it is highly valuable, employ a security guard with a CC camera on site. Make sure to update all revenue documents reflecting the ownership change as well. After all of this, hope for the best and prepare for the worst. Good luck and happy property hunting!
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