The economic reforms pursued by India nearly two decades ago has resulted in growth of many areas which are essentials to financial system of the country. The financing is one area that has shown remarkable growth in the recent time and is seen to play a major role in growth & development of Country.
The bank financing in housing sector has completely changed the way immovable property are sold and purchased in the country. It has certainly helped hitherto marginalized groups in society to have access to and fulfill the dreams of owning the property which as a jurisprudential concept is as old as the beginning of the formation of the social society among the human kind. A person desire to own something of its own which he can use and enjoy to the exclusion of all others has been a fundamental right recognized by all legal systems across the globe.
The formal mortgage housing finance sector continues to elude the lower income groups on account of non-availability of clear title, high transaction cost and difficulties in risk assessment due to irregular income behaviors.
Credit market is pivoted around mortgages. Creation of collaterals by way of deposit of title deeds is the most common method employed in the industry for its simplicity and cost effectiveness. Mortgage Deeds have duty implications and therefore an avoidable option in comparison to the former method. Such fundamental problem of absence of clear title is preventing greater penetration of credit business across the market. It is not just affecting the housing credit business but also have far reaching consequences. Even courts have considered the legality of creation of equitable mortgage by deposit of legally infirm documents like letter of allotment, possession etc. however opinion is divided across various courts and the matter is now under consideration before the Hon’ble Supreme Court.
Therefore, there is felt a fundamental need of clearly defining the rights of the persons in tangible objects in order to ensure that the persons enjoy such rights without any confusion and to the exclusion of others. This gives rise to a legal need to clearly define the title in the properties owned by people. Growth of credit market in housing sector largely depends upon how soon a legal and efficient system can be evolved to record and recognize people’s right in the properties in the form of clear title.
In India title to properties can be claimed by persons in diverse legally recognizable means. The most common and legally efficient way of claiming title in property is by possessing a sale deed in one’s favor however even such legally executed document is not free from competing claims made by others to the title.
Such competing claims arise out of inefficiently maintained system of recording land titles by the State controlled and run land registries whose inefficiency and corrupt practices have become an order of the day. It is commonplace to note that even a duly registered sale deed is doubted by for its lack of authenticity and legal competence to convey clean titles. Such problem is attributable to fragmented land registries that do not have real time access to other land registries to avoid multiple registrations. Even loop holes in registration laws are exploited by corrupt players to obtain multiple registrations over the same property by getting the registration affected in the registry other than where the property is situated to avoid detection.
In Delhi we have seen many examples where for properties situated in Delhi sale deeds have been registered in Mumbai by exploiting a provision in law that allows one land registry in Mumbai to register properties situated anywhere in India.
Succession laws in the country allow family members to lay a competing claim to the ownership of a person who claims a property as his own by alleging that the property being ancestral in nature necessarily belongs to all family members and not to just one.
Likewise agricultural properties have their own peculiar legal problems. Laws recognize ownership by way of possession and recordal of cultivatory rights in the statutory registers. Such ownership claimed on the basis of recordal of rights in a statutory register and not on the basis of a document of title acts as an impediment in housing credit market.
Credit help people to aspire beyond their existing means by allowing them to take advantage of borrowed money and in the absence of such facility the buyer is forced to buy cheap and not so good options that are within their limited resources. Such cheap options give rise to unplanned development in the form of unauthorized developments and banks keep away from properties in such areas due to lack of clear title and building as per the guidelines issued by Reserve Bank of India based on the judgment of Delhi High Court.
Another problem faced today by the housing credit market is the legal status of the state owned lands. Due to socialist policies adopted earlier the land always vested in the State who would allow its subjects to use the same as lessees. I am referring to lease-hold lands. Title never passed on to the occupier or lessee. Even if the rules permit conveyance of title in favour of the lessee, such conveyance is fraught with legal complications and is a costly affair. Banks are normally shy of financing transactions pertaining to lease hold properties. Such legal requirement creates legal complications and hence acts as an impediment in the growth of the housing credit market.
Unless we resolve and address the fundamental issue of title in the property by making laws that remove all complications and government strengthen the foreclosure laws, land records, create the conducive environment for setting up of credit bureaus, mortgage insurance / guarantee company etc., it will be very challenging for the housing credit market to reach out to all cross sections of the society particularly the weaker and underprivileged section of the society.