In recent years, the Indian real estate industry has completely transformed, undergoing extensive reformats and shifts. Several updated landmark reforms like the Real Estate Regulatory Authority (RERA), digitisation of land records, and the push towards transparency have brought about these drastic changes in the industry.
However, there is one critical element that remains unexplored: title insurance. For Non-Resident Indians (NRIs) wanting to invest in Indian real estate, title insurance will provide them with much-needed protection against potential disputes. But how? Let’s explore it further.
What is Title Insurance?
Title insurance is a tool that protects buyers and lenders from all kinds of financial losses due to disputes or defects in property ownership across India. These could include:
- Fraudulent transactions.
- Undisclosed heirs.
- Unclear ownership history.
- Pending litigation cases.
- Errors in public records.
Note: Title insurance is completely different from general insurance, which usually covers future risks.
Why NRIs Must Secure Their Property Titles?
NRIs must ascertain whether the property is transparent, transferable and free from any claims. Disputes related to property ownership claims, pending litigation, or fraudulent documentation may often derail the purchase process.
Let’s take a look at some of the most common pitfalls in Indian real estate transactions:
- Lack of Proper Research and Due Diligence.
- Inadequate Financial Planning.
- Lack of Clear Communication.
- Failure to Review and Understand Contracts.
Read Also: Top Five Factors NRIs Should Consider Before Investing in Real Estate in India.
Benefits of Title Insurance for NRIs
With the rise in cases of disputed land ownership and encroachments, title insurance has become a safeguard for NRIs in India. This insurance policy ensures that property ownership is legally sound. It also protects investors from financial losses due to title-related issues.
Below are some key benefits of title insurance for NRIs.
- Legal Protection Against Title Disputes:
One of the biggest concerns for NRIs investing in Indian real estate is the risk of legal disputes over property ownership. Title insurance ensures that ownership is legally valid and provides financial protection against potential lawsuits, helping NRIs avoid costly litigation.
- Coverage for Encroachments and Fraudulent Sales:
Encroachments, where unauthorised construction extends onto a property, can create legal complications for NRIs. Likewise, fraudulent property sales, where land or property is sold without legitimate ownership rights, can lead to significant financial losses. Title insurance helps safeguard investments by covering losses.
- Protection Against Errors in Public Records:
Errors in land records, such as clerical mistakes, missing documents, or misinterpretation of legal descriptions, are common in India. Title insurance acts as a safety net by covering financial losses resulting from such errors and assisting NRIs in rectifying ownership discrepancies.
- Safeguard Against Undisclosed Heirs and Inheritance Claims:
Many properties in India are passed down through generations, and in some cases, undisclosed heirs may come forward with legal claims. Title insurance protects against such unforeseen claims, ensuring that the rightful owner is legally defended and compensated if disputes arise.
How to Obtain Title Insurance in India
Any NRI who wants to buy or sell properties in India must know how to obtain title insurance to prevent legal complications. This often involves verifying the title of the property in question to make sure there are no fraudulent claims or legal issues.
Here are the steps that you can follow to confirm the property title prior to applying for title insurance.
- Check Government Land Records and Past Transactions:
The first step is to examine official government land records, which provide details about previous owners, transaction history, and any legal encumbrances on the said property. NRIs can easily access these records through online portals managed by state governments. Alternatively, they can visit local revenue offices for physical documentation.
- Review Encumbrance Certificates (EC):
An Encumbrance Certificate (EC) is a document that generally states the property is legally and financially free from any loans, pending dues, or disputes. Buyers should request an EC from the sub-registrar’s office and make sure it includes details of the property for at least the past 30 years. This helps ensure that no hidden claims exist on the property.
- Verify Property Tax Receipts and Utility Bills:
Checking property tax receipts ensures that the property owner has regularly paid municipal taxes. This, in turn, also confirms legitimate ownership. Similarly, verifying utility bills, such as electricity and water bills, in the name of the seller further strengthens the ownership proof.
- Confirm Ownership Through Sale Deed and Mother Deed:
The sale deed is the main legal proof of property ownership. It must be legally registered and free from any defects. The mother deed, also known as the parent document, traces the origin of ownership and the property’s succession history. Non-resident Indians (NRIs) are able to obtain assistance from legal professionals in order to check these documents and confirm that the ownership is valid.
- Apply for Title Insurance:
Buyers can easily apply for title insurance through an authorised insurance provider in India once the property’s title is verified. The insurer will analyse the property’s documentation and history before issuing a policy. Title insurance usually covers legal expenses and financial losses arising from ownership disputes, fraud, or historical defects in the title.
Here is the list of title insurance providers in India:
- Tata AIG General Insurance Company Limited.
- HDFC ERGO General Insurance Company.
- Fidelity National Financial India (FNF India).
- AXA XL.
- First American (India) (FAI).
Read Also: Navigating Family-Owned Property Deals in India as an NRI Buyer
Cost & Coverage of Title Insurance
The average cost of title insurance in India is 0.5% to 1% of the property’s purchase price. However, the costs may vary depending on various factors like the property’s location, size, type (residential or commercial), and the insurer’s terms and conditions.
These premium rates are generally the same for NRIs, who can invest in Indian real estate to earn rental income. However, such income is subject to 30% TDS (Tax Deducted at Source), and the balance can be repatriated in accordance with FEMA (Foreign Exchange Management Act) regulations.
The cost of title insurance covers legal protection against ownership disputes, fraud, encroachments, and boundary issues. It also includes compensation for loss of ownership and legal defence expenses. The risk mitigation tool specifically protects forged documents, unpaid loans, and missing heirs.
Lessons for Future NRI Investors
NRIs may find Indian real estate investments rewarding, though they must be prepared to deal with several legal, financial, and regulatory challenges. Ensuring a secure investment requires due diligence, compliance with legal frameworks, and risk mitigation strategies like title insurance.
By learning from past experiences, future investors can safeguard their assets and maximise returns.
- Conduct Thorough Due Diligence:
NRIs should verify land titles, encumbrances, and past ownership records through government portals and legal experts to avoid disputes and fraudulent claims.
- Invest in Title Insurance:
Title insurance protects against ownership disputes, encroachments, and legal challenges, ensuring peace of mind and financial security in property investments.
- Choose Reputed Developers and Legal Advisors:
Investing in properties from RERA-registered developers such as Rustomjee and seeking advice from experienced real estate lawyers can prevent legal and financial risks.
- Regularly Monitor and Maintain the Property:
Properties left unattended for long periods can be vulnerable to encroachments or illegal occupation. Assigning a local representative or property management service helps safeguard the investment.
Final Thoughts
For NRIs, investing in Indian real estate often involves navigating various obstacles. These often range from regulatory and legal complexities to financial and operational hurdles. NRIs should adopt a well-planned approach to overcome these challenges successfully.
Title insurance is the best resort to avoid such pitfalls and ensure safe transactions. The document helps to confirm legal compliance and supports NRIs in partnering with reliable property developers. This helps them overcome property-related challenges and achieve their goal of owning a home in India.
If you’re an NRI looking to purchase a property in India, get in touch with Rustomjee to explore premium residential options and turn your dream into reality.
FAQs
- Can NRIs take a home loan in India to purchase a residential property?
Yes, NRIs can avail of home loans from Indian banks and housing finance companies to purchase residential properties in India. The process involves submitting necessary KYC documents, proof of income (such as NRE/NRO account statements), and employment verification. The loan is typically repaid through NRI bank accounts in Indian Rupees.
- Is it mandatory for NRIs to be physically present in India to complete a property purchase?
No, NRIs are not required to be physically present in India to buy a property. They can complete the transaction through a Power of Attorney (PoA), which authorises a trusted individual in India to act on their behalf for property-related matters such as registration, possession, or legal documentation.
- Can NRIs purchase agricultural land or farmhouses in India?
No, NRIs are not permitted to purchase agricultural land, farmhouses, or plantation properties in India under the existing FEMA guidelines. They are allowed to buy only residential or commercial properties. However, they can inherit agricultural land if it’s passed down through succession.
