It is with dismay that insurance regulator IRDAI has noticed the minimal number of title insurance policies sold in the market. This is going on despite the insurance cover made mandatory after the Real Estate (Regulation and Development) Act, 2016 was passed.
It has been more than a year since it was implemented; just a few policies have been sold. Also, very few insurers sell this product.
While the policy has to be taken by developers against any disputes relating to the property, it is the consumer who has the biggest stake here.
Here is why.
What is this product?
The majority of Indians look at real estate from a long-time asset and investment perspective. However, your property investment is of no use if there are legal issues with the title.
Title insurance refers to insurance for the title of a real estate property and is mandatory, according to the Real Estate (Regulation and Development) Act 2016. Title, in simple terms, denotes who the owner of the property is.
This speciality insurance product provides indemnity to property developers and the subsequent owners of the property against losses and risks related to defects in property title arising out of third party challenges not discovered before the policy takes effect.
Before any real estate project is operational, the developer/owner of the plot of land has to take a title insurance policy from a general insurer.
The policy is taken for 10-15 years for per-flat basis for the entire project. After the project is completed, the housing society members can also buy a product for the entire building.
But, why is this product necessary and how does it benefit the property buyer?
Take for instance a property in South Mumbai for which you would have paid Rs 3 crore.
After one year, you find out that the developer owes money to a lender for this piece of land and your entire building is in fact hypothecated to the bank.
As an investor you have no other option but to vacate the property. However, in case the developer bought a title insurance policy, he would be liable to pay you compensation in order for you to look for temporary accommodation.
This also comes handy when ailing real estate projects of one developer are taken over by another developer. The title of the property is often marred in controversy in such cases, and, for the end buyer, it is a risky proposition.
In cases like the Amrapali project where the home buyers are waiting for clarity on their properties, a title insurance could come handy.
What will it pay for?
The insurance product comes into force from the time a project is set up. If there is litigation related to a property due to financial issues or inaccuracies in the land ownership documents, the end land buyer is at a loss.
When a court case is filed and the project completion is delayed, the title insurance will provide compensation to the buyer of the property.
An inordinate delay in construction may also hamper the market value of the real estate project. The policy will provide compensation in the case of delay resulting in price erosion as well.
One point to note
A title insurance is different from property insurance policies that cover the home structure from physical damages due to earthquakes, floods or other calamities.
While taking a property insurance is a healthy habit, insist your builder to get a title insurance too.
But, why are sales low?
Premiums are high, and that makes product purchase restrictive. Insurers have said that, when volumes increase, the product prices will go down.
For a seven-year policy, the premium ranges between 0.5 percent and 3 percent.
Developers have said that these rates are too high and they would have to recover this from home buyers. This would result in the home prices shooting up further.
Another factor is the exclusion in the products offered.
For instance, changes in the nature of the property use will mean that title insurance is not valid. Similarly, if the developer has committed any fraud in purchasing the land, the insurance will not pay for the damages.
What is IRDAI doing?
IRDAI has said that the developers’ associations have flagged the need for standardisation in the title insurance products.
For this, IRDAI has decided to constitute a working group to revisit the product structure of title insurance.
It will analyse the reasons for sluggish demand and develop a standard title insurance product suitable for India. Reinsurance capacity is also a major factor why the number of products available are few. IRDAI will also suggest augmentation of reinsurance capacity within the domestic market.