So you’ve got your eye on a parcel of land — the location is excellent, the area is rapidly developing, and new infrastructure is coming up in the vicinity. You like the price and have lined up the funds. Excellent. But before you pick up that pen to sign, ask yourself: Can any of India’s longstanding laws adversely affect your investment? Do you have unequivocal proof that the title is clear?
In other words, is your investment safe?
To understand why a careful, professional inspection of title documents is so critical in real estate dealings, it is helpful to peer briefly into Indian history. After Independence, the Indian government set out to dismantle property-oriented policies prevalent before and during the British Raj. Previously held grants were abolished, and large swaths of land were vested with the government. In some cases, persons cultivating the land were permitted to claim occupancy rights.
In terms of intent, these measures were meant to help lift vulnerable families out of poverty and to set them on a path to self-sufficiency. Intentions, however, went only so far. The rollout of these policies was unevenly communicated and executed, leaving a legacy of uncertainty concerning titles of countless properties even today. Below, we take a short look at examples of legislation behind the confusion.
- Inams Abolition: Inams were essentially land grants (gifts) awarded to certain community members who found favor with the British or the rulers of the princely states. From the 1950s to 1970s, laws were introduced in many Indian states to put an end to this legacy system. The basic idea was that an inamdar (a person who had received land as inam) would cease to own this land but would be able to regain the property if he applied to the government within a specified time and registered as an occupant. If no action was taken, the land would vest with the government. Many inamdars were unaware that they needed to go through this formal application process, and to this day, there are numerous land parcels that technically belong to the government but are in the possession of the descendants, heirs or assigns of these inmadars. If you buy inamti land without checking to see whether it was regranted, you could be buying land that actually belongs to the government and can legally be taken away from you at any time, even if all title documents appear to be in order and title has passed to the current owner through due conveyance.
- Village Offices Abolition: A similar set of measures to do away with hereditary village offices and redistribute those feudal lands has proven highly complicated to implement. To take one example, in Karnataka the Village Offices Abolition Act went into effect in 1963. The intent of this Act was to take back lands granted to hereditary village offices and regrant those lands to authorized holders of village office. Unintended consequences followed, such as ex-village officers selling their land for small sums and subsequently finding it difficult to make a living. To deal with these consequences, legislators have passed a series of amendments since then, even as recently as 2003. In some cases, transactions have been declared null and void, and land has been regranted to the ex-village officers. A cloud of ambiguity and risk still surrounds many properties affected by this legislation.
- Prohibition of Transfer of Certain Lands: In another set of initiatives meant to boost social welfare and prevent exploitation, legislators across India granted land to members of scheduled castes and tribes. Most of these grants came with restrictions on the ability of the grantee to resell the land. There was often a minimum holding period before a resale would be allowed, and there were requirements for government permission prior to any future transfers. Nevertheless, the recipients of these lands, knowingly or unknowingly, have effected transfers without complying with the various restrictions on conveyance, and such conveyances are therefore invalid. This means that the land continues to belong to the original grantee even if he was paid full consideration in an arm’s length transaction. If you were to buy a parcel of land that, at any time in the past, was acquired in violation of these restrictions, you would be paying for a land that would never belong to you – rather, it would be restored to the original grantee.
A particular irony of these policies is that not only have they caused great confusion, but they sometimes even harm the families they were written to protect. For example, the laws do not take into consideration the rapid growth of Indian cities, a phenomenon which has transformed agricultural parcels into highly valuable urban lands. For a farmer, this means selling land to a buyer for non-agricultural purposes could potentially be quite advantageous. Rather than enabling the farmer to freely use his asset, the grant-related policies depress the value of the land and restrict his options, keeping him in perpetual poverty.
For you as an investor, it is vital to understand that legislation dealing with inam lands, village offices, and caste- or tribe-based restrictions could be highly relevant to the prospects for your investment. Only a highly trained legal expert is equipped to examine the full paper trail and identify what documents may be missing or otherwise not in order. In this context, it is important to point out that land diligence is so complex in India that only a small subset of lawyers who specialize in property transactions are capable of doing it.
Furthermore, it is important to recognize that “the government” is not a single entity—that is, the various administrative arms do not often work in coordination. Even though you may register your sale deed with one branch of the government and pay property taxes to another, your property can still be seized by a different branch of the government. Having proper registration documents and clean tax records will offer you only scant protection if the original title of the land comes into doubt.
At SmartOwner, India’s leading marketplace for property investors, a painstaking curation of property is a critical part of our model. We evaluate numerous opportunities yet present only a tiny fraction of them to our clients. That’s because every single document, including those generated decades ago, must be in perfect order before we move ahead. Only those properties that have cleared all due diligence hurdles—including a clear title opinion by leading real estate law firms—are placed on our platform.
However you choose to invest, make sure you understand your purchase in the full context of Indian property law. If you go through a trusted marketplace such as SmartOwner, the full scope of legal due diligence is conducted for you. If you invest on your own, hire the best attorney you can find to pore over the papers. Once you’ve paid heed to the principle of caveat emptor and feel confident about all the other aspects of your investment, then—and only then—it’s time to pick up that pen and sign.