The Telegraph
Since 1st March, 1999
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Title deed tremors rock realty

New Delhi, May 21: India’s realty business is teetering on shaky title deeds ' and that can’t be a comforting thought for people who wish to buy property.

DLF Universal Ltd ' which is planning to come out with a mammoth Rs 13,000-crore flotation, the biggest that the domestic capital markets have seen ' has blown the lid of a little-known but a widely suspected truth in the realty business.

In a startling admission in its red herring prospectus, DLF says, “Most of the lands do not have (a) guaranteed title and (the) title has not been independently verified.”

As if that isn’t spooky enough, it gets worse. “Some of our agreements with third parties in relation to the purchase of the land have expired or may be invalid.”

Land is the biggest asset for real estate developers and players like DLF stake out large tracts across the country for their projects.

The prospectus says DLF has had its land bank independently valued by two property consultants ' Cushman & Wakefield, and Jones Lang LaSalle. Both firms valued properties representing about 228 million square feet in 64 locations in the country. Cushman valued it between Rs 77,200 crore and Rs 85,300 crore. Jones Lang LaSalle put it at Rs 85,300 crore.

The dodgy title deeds and the prospect of litigation could hurt these property valuations. “Lands for which we have entered into agreements to acquire but have not acquired form a significant part of our growth strategy and the failure to obtain good title to these lands could adversely impact out property valuations and prospects,” says DLF’s red herring prospectus.

“The uncertainty of title to (the) land makes the acquisition process more complicated, and may impede the transfer of title, expose us to legal disputes and adversely affect our land valuations,” it added.

DLF has brought a dirty secret out in the open ' but other players are less willing to discuss the issue. Some are even blas' about the whole situation arguing that what DLF recounts as a risk factor in its prospectus rarely impacts realty business operations.

“It is a concern for all the players, but this issue has always been there. It certainly delays the process of land acquisition,” says Sanjay Verma, joint managing director at Cushman and Wakefield.

He is confident that as the industry grows, it will find ways to deal with the problem. He reckons that the industry could see the emergence of new products like title insurance to cover any downside risk arising from the problem with dodgy title deeds.

Parsvanath Developers ' another real estate developer, which will be hitting the market with a Rs 1,600-crore issue on May 29 ' doesn’t go as far as DLF in acknowledging that the problem exists.

It tries to skirt around the issue by choosing its words with care. In a blandly worded admission, its prospectus says: “Some of our agreements may not be adequately stamped and some of our immoveable properties for our projects or offices, which are either owned by us or taken on lease or have development rights on, may have one or more irregularities of title such as non-execution of conveyance deeds for transfer of property, inadequate stamping and/or non registration of deeds and agreements, non-execution of lease deeds and non renewal of lease agreements.”

Says Pankaj Dayal, CEO of NAI Collaborations, a Delhi-based real estate consultant, “Real estate companies have to invest in creating a land bank. Title isn’t a serious issue, and a lot of industry players are smart enough to find ways to deal with the problem.”

DLF says a lot of the land it acquires consists of agricultural lands. “The title to these lands is often fragmented and the land may, in many cases, have multiple owners,” says its prospectus.

Industry mavens aren’t terribly worried about the problems that such a situation could pose. “Most of these title issues, involving disputes with multiple land owners, are sorted out by the players with the parties involved and are not a cause for worry,” says Rajeev Behl, a consultant with Realtech.

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