Technology To The Rescue: Blockchain Method Can Tidy Up Property Title Transactions

Dealing in real estate in India is hard. According to the World Bank’s ‘Ease of Doing Business’ survey, India ranks at hundred and thirty-eighth in the world in difficulty in registering property. But we don’t need an international survey to tell us this.

As anyone who has transacted with property in India will testify, everything to do with transferring interest or title in real estate, be it something as simple as leasing a flat or as complex as developing a commercial project across multiple land parcels, is complicated and mired in intricacy and uncertainty.

Central to any real estate transactions is the question of title, and unfortunately, it is still very hard to confirm whether a seller in India has title to the property he intends to sell.

While the law requires transfers of title and interest in the property to be registered, this only provides limited assurance as transfers can be assailed in many ways — from family members who claim title through inheritance to unknown third parties who try and assert their right to specific performance.

In India (as is true of most common law countries), ownership rights to property are proved through title deeds — a chain of documents that evidence the transfer of title from person to person over the years all the way to the current owners. The problem is that any one of these intermediate transactions is capable of being challenged under the principle of nemo dat quod non habet—one cannot give that which he does not own. If we are to introduce greater certainty into the real estate business, we must devise a mechanism by which transfers cannot be set aside.

In 1858, Sir Robert Richard Torrens, the third premier of South Australia, proposed a revolutionary new system of land registration designed to do just that. Under the Torrens system, the title is established solely by the facts recorded in the land register, making title deeds completely irrelevant.

Once so recorded, the state guarantees indefeasible title to all those whose land is included in the register and, if in the process, someone can prove that they illegitimately lost their title due to private fraud or state error, rather than revoking the transfer, the state is bound to compensate such person for his loss.

Rajasthan recently passed the Urban Land (Certification of Title) Act, 2016, and became the first state in India to enact a title guarantee legislation. If implemented successfully and eventually rolled out across the country, this could transform the Indian real estate industry. That said, there remain legitimate concerns that this new system will be plagued by the same malaise of corruption that affects our current land registration process.

Title guarantee relies on the accurate and exhaustive inclusion of every single property transaction in a centralised register maintained by the state. Since this register is the sole determinant of ownership, it is essential that the bureaucratic machinery responsible for its maintenance operates with the highest standards of probity and integrity. If the officials tasked with its maintenance can be suborned to manipulate dates or alter the records in any other manner, the entire system will fall apart. It is therefore critical to the success of this model that the mechanism for recording transfers is tamper-proof.

Sir Torrens did not have the benefit of modern technology when he invented this system. We do and should use it to our advantage to ensure that our registers are tamper-proof. One technology that immediately comes to mind is the blockchain and the elegant way in which it uses distributed ledgers. Every user of the blockchain has a copy of the entire ledger of transactions that have taken place with that crypto-currency, and every subsequent successful transaction is uploaded onto each such copy of the ledger. If we can, in a similar manner, record property transfers on a blockchain ledger, we’d have an immutable history of every property transaction that can be viewed by everyone and yet tampered by no-one.

There are many other benefits to using blockchain for land records. Every entry will be accurately time-stamped significantly reducing the chance for fraud. While transfers can be recorded on a public block-chain to ensure transparency, it is possible to store them on a private block-chain by turning the record into a cryptographic hash which will make the data verifiable without anyone seeing the data itself.

If necessary, ancillary features such as notarial services and escrow can be easily added.

The Republic of Georgia has recently implemented a land titling system based on blockchain technology and allegedly recorded over 1,00,000 title transactions within the first two months of its launch. The state of Rajasthan, as the forerunner in the adoption of this new system in the country, should seriously consider following suit.

Then we might, finally, have a modern solution to a very old problem.

This article was originally published in Mint and has been republished here with permission.