Are foreigners allowed to invest in property in India?

Not generally, unless they are investing in approved construction development projects. Approved projects include housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional level infrastructure and townships.

In situations where foreign investors are allowed to invest in Indian property, what are the most significant legal risks they face?

Sadly, there are many incidents of fraud and concealment resulting in property disputes in India. Undisclosed charges over properties and existing court cases affecting properties are common. If they do not carry out a proper due diligence process, buyers can take on a huge amount of risk when buying properties in India.

However, even if a thorough due diligence process has been carried out, there are still a few risks involved. It is not unheard of for the owner of an unregistered piece of land to execute a mortgage against a new development, and not tell the buyers of the development that this has been done. As lawyers, we also tend to become suspicious if the owners of a property refuse to show us the original title documents, but only offer us photocopies. If this happens, we may suspect a mortgage by deposit of title deeds has been taken on the property. Sometimes individuals expect us to believe that they own a property “because they say so” and “everyone in the area knows that”.

Is there a central property register for investigating title in India?

No. There are several thousand regional property registration offices in India, where one can visit to check up who holds the title to individual sites. However, each of these holds records for specified areas only, and many of these offices still don’t have computerised records. This situation can make searching for proof of title difficult.

Many investors have to rely on a “root of title” document review to establish whether the vendor actually owns a property he claims to be selling. On some occasions, the first title will have been granted by the Government of India, so there will be official documentation proving title. On others, particularly when the land was previously used for agricultural purposes, there may have been no grant of title by the government. In those cases, ownership of land can be verified through revenue records or records of the Patwari – essentially, a map and register kept by the local government-appointed official showing the owners of individual plots of land. Many of these plots of land – some of which are enormous – have not yet been registered, and their details have not been computerised.

Are their any practical steps that buyers can take to protect themselves from this kind of legal risk?

Firstly, you need a thorough due diligence. Next, the buyer can make the acquisition revocable, by withholding part of the consideration for a few months. It’s a good idea to meet the earlier occupier or tenant, and find out why they left or are leaving. However, other options – such as the purchaser buying title insurance – are not generally open. In my career, I have not come across a proper title insurance scheme. It’s also useful to ask the “owner” to sign a declaration and affidavit that they really do own the property, and that it is not encumbered.

More positively, Indian courts are quite good at providing litigants with quick interim effective legal remedies to protect their property assets during a dispute. Effective interim orders can typically be granted between 24 hours and a week after an application is filed. However, after interim relief is granted, the case can – and often does – linger on for many years.