The Real Estate (Regulation and Development) Act [RERA] has taken effect since 1 May 2017 making it compulsory for developers to take title insurance, but to date, not a single state regulator has mandated it.
Section 16 of the RERA requires developers to adopt title insurance; however, the insurance will be mandatory only after the regulator of each state issues a notification about it, notes Press Trust of India. The new law covers residential and commercial construction.
In addition, since the concept is new in India, not many insurance firms have introduced the product. HDFC Ergo launched title insurance in July, making it one of the first such products launched by private insurers.
Furthermore, developers are hesitant to adopt it, saying it may add to costs. According to financial services company Nisus Finance, considering the real estate sector is estimated at about $50bn each year, the potential insurance premium can be in excess of $1bn each year, which can add about INR150 ($2.12) to INR200 per sq feet of cost to the end product, which is steep for affordable housing.
Nisus Finance MD and chief executive Amit Goenka said, "The burden on developers will be massive because they will have to fork up almost 2-3% of the development value of the project upfront to obtain title insurance, apart from undergoing a prolonged and difficult exercise to verify the authenticity of title to the satisfaction of insurers which will add to the transaction costs."
Title insurance provides coverage against financial loss arising from title defects and other irregularities pertaining to property acquisition.
House of Hiranandani chairman and MD Surendra Hiranandani said the key question in adoption of title insurance is the cost.
"Hopefully, if there are a large number of takers, the costs would fall. Right now, it is prohibitively expensive and would impact costs and therefore prices. Also, it should be noted that title insurance covers only part of the risks and does not protect from many kinds of litigation and issues," he said.