Accounting firms are turning up the heat on real estate developers to push them to buy insurance for projects. Sources told Moneycontrol that several accounting firms have threatened to stop working with them unless they buy a title insurance cover.
“Compliance costs under RERA are high and we do not want to be held up for the company not adhering to the minimum requirements of the laws,” said a senior official at a large accounting firm. Real Estate Regulatory Authority (RERA) is the governing authority for the sector.
Title insurance refers to insurance for the title of a real estate property and is mandatory, according to the Real Estate (Regulation and Development) Act 2016. Title, in simple terms, denotes who the owner of the property is.
This specialty insurance product provides indemnity to property developers and the subsequent owners of the property against losses and risks related to defects in property title arising out of third party challenges not discovered before the policy takes effect.
These could be due to the title of the property belonging to someone other than the insured, or any other issue pertaining to the property, including fraud and forgery.
Unlike other insurance products that come into force only from the day they are bought, title insurance pays for any losses related to the ownership of the property.
Auditors threatening to quit could be detrimental, considering promoters of real estate projects need certified chartered accountants to look into their accounts and give necessary certificates that the project money is being utilised for the right purposes and that they have the necessary legal permissions in place.
Even though the RERA Act, which took effect on May 1, 2017, mandates title insurance, realty players have been oblivious to this requirement. In August 2018, Raheja Universal had announced that they are the first player to adopt title insurance as per the requirements of the Act.
Insurance company officials told Moneycontrol that developers find the premium costs high.
“Depending on the size of a real estate project, the firms will be required to pay about 2-3.5 percent of its value to get insurance. Further, the underwriting teams of insurers will look into the validity of the project and verify all the documents, the cost for which will be borne by the developer,” said the underwriting head at a mid-sized general insurer.
The official, however, said that once the volumes of the cover go up, the premiums will reduce. Having a cover protects the home buyer as well as the developer from undue litigations pertaining to the title of the insurance product.