The Indian Economy Blog

November 13, 2007

A Small Step for Property Rights

Filed under: Business — Ravikiran Rao @ 5:28 pm

We have been lamenting quite a bit about how Indian laws do not protect property rights. The reality has been worse than that. The Indian government does not even record property ownership properly. Unclear land titles have been the bane of India’s property market.

Now it turns out that a small step towards recording land titles is being taken.

Rajasthan, Andhra Pradesh and Karnataka are set to directly or indirectly guarantee property titles in urban areas in an effort to make property transactions easier and reduce or prevent most such deals from landing up before the courts.
The move will remove uncertainty surrounding more than half the land deals that happen in India because most property owners do not have a clear title to their holding. It will make it easier for foreign real estate funds to invest in properties here. And it will also provide a boost to the real estate sector and industry in general because unclear titles present a hurdle to efforts to acquire land. According to Anil Baijal, the country’s former urban development secretary, six out of every 10 land transactions in the country end up before the courts.(link via Sruthijith)

8 Comments »

  1. This is another example of how some Indian States take independent steps to become more competitive. Shanta Devarajan, the Chief Economist at the World Bank has an interesting posting about how the success story of Indian growth is actually driven by only a few “winner States” Check it out here:
    http://endpovertyinsouthasia.worldbank.org/four-inconvenient-truths-about-indias-economic-growth

    Comment by Sereen — November 14, 2007 @ 7:56 am

  2. While I share your lament about Indian laws not protecting property rights, I am rather disappointed with your second observation:

    “The Indian government does not even record property ownership properly.”

    This is a rather flippant and irresponsible statement, especially for one showing up on IEB. For starters, the Indian government is not responsible for recording property ownerships. Property records are the whole and sole responsibility of the panchayat, taluk, zila, or municipal corporation, as the case may be. The Indian government has no authority or responsibility for the maintenance of these records, unless there is a violation of the constitution or national interests in their administration. Did you actually mean local governments?

    Secondly, at an academic level, it is widely acknowledged that India has rather robust traditions of book-keeping, thanks to the colonial and pre-colonial land-revenue legacy. The British themselves, impressed with the chauth system in Western India, borrowed many aspects of it, and the post-independence bureaucracy have carried on the tradition in modern times. I spent months analyzing land sale data in Gujarat in the late 1990s as part of a study on the impacts of structural economic changes on the land market, and I was impressed to see the meticulousness with which city and taluka officials keep records of land transactions. True, prices listed on the books didnt always represent the actual sale value, but that is not really a direct reflection of record keeping (it is more a reflection of the lack of enforcement of laws pertaining to commercial transactions and taxation, in general).

    Lastly, I wholly agree that land titles are screwed up big time in many parts of India. However in most of those cases, the condition is because of conflicting claims and a tendency to conduct land transactions off the records (a personal, albeit illegal, choice of the market players) to save on taxes. In many rural and semi-rural areas, land titles are unclear because they represent private encroachments on federal lands (i.e., forests) or panchayat lands (i.e., charnots or pastures) and ownership is effectively in limbo. Messed up land titles are NOT a reflection of the local governments’ sincerity at keep records.

    When you say “a small step towards recording land titles is being taken”, you give the impression that there is something horribly wrong with India system of title-recording and the country is just beginning to wake up. On the contrary, the system of land and revenue records is one of the better institutions that India has, in spite of the irregularities and corruption (which, incidentally, happens to impregnate nearly every public system in India, to a greater degree). Transparency and honesty in commercial transactions (i.e., unambiguous title maintenance) is a habit that Indians have to develop in the context of land as much as in other spheres of the economy. To blame the record keeping system for the prevailing ills is simply wrong.

    Comment by Rahul — November 14, 2007 @ 10:01 am

  3. By Indian government, I did mean the local government. I know that keeping records is not the Central Government’s job.

    I don’t claim to be an expert on land titles in India and I did not really know the details of the problem. So it is not really a problem with record-keeping? In your assessment, how much of the problem will this move solve?

    Comment by Ravikiran Rao — November 14, 2007 @ 1:51 pm

  4. The local government ( or rather the registrar or the sub registrar ) is just a record keeper. They are not required to validate if the person selling the property indeed has the right to sell ( i.e if they indeed possess the title, the property is not mortgaged etc ). It is expected that the buyer do the do diligence by asking for the records. I presume the new change means that local government will not only keep records, but also identify the valid title holder for each property.

    Comment by barbadkatte — November 14, 2007 @ 4:56 pm

  5. Yes, as barbadkatte points out, the problem is not with record keeping (an administrative affair) but with titles (a legal+political affair).

    Clearing land titles will certainly smoothen land transactions and boost buyer confidence in deals. To what extent, it is hard to say. The move is welcome, but I would watch it with suppressed excitement. Land titled are messy not only from the legal point of view, like the article points out, but carry a far larger political baggage than one would imagine.

    In many parts of Rajasthan, for instance, there is a wide discrepancy between land ownership and land titles because one widely accepted form of “ownership” is the receipts of penalties that private encroachers pay for encroaching on forest (federal) land (even local governments widely accept this as proof of ownership). Believe me, the only way that you can get a private title on these lands is to snatch it out of the cold, dead fingers of the Forest Department. The Indian government is in no mood to relinquish its titles, unless the legislative move of the states is complemented by legislative changes in the Parliament. Land policy, especially the titular aspects, has been the subject of activism and legal/legislative battles in Rajasthan since the past two decades without going anywhere. One of course wishes the problems would smooth themselves out quickly.

    In urban areas like Hyderabad, a lot of the uncertainty in titles comes because the property in question lies on publicly-owned lands. For instance, a slum dweller is the de facto owner of his home (because of his being part of a very vocal political constituency)and may even pay taxes but doesnt have a title. If the city registrar starts handing out titles to slum residents, will developers and civic group not complain about it being unfair?

    Ravikaran, myself and a large group of peers read IEB with the expectation of getting an informed analysis, and at the very least, a honest representation of a problem. No one expects IEB writers to be experts, but one does expect them to be modest and cautious when passing judgments. You may not have passed any real judgment in the few words you introduced the article with, but the tone was certainly terribly condescending. I apologize if i overreacted.

    Comment by Rahul — November 14, 2007 @ 8:03 pm

  6. With all this foreign investment (read as hot money), the ordinary people can forget about owning a house ever. Hopefully the software coolies can afford them. That would be a slight relief.

    Comment by HmmBut — November 16, 2007 @ 10:56 am

  7. the informtion of ieb was no ware related with property dealings ….. it was all talking about earnings ,,,,,, so it is a point of out of issue . so rahul,barbadkatte …… go it

    appreciate the person he has passed on some info …..that is what i want to say …..

    your’s sirish

    Comment by sirish — November 18, 2007 @ 12:49 pm

  8. Sad but true

    Comment by Supriya — November 27, 2007 @ 5:02 pm

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