No significant impact of removal of indexation benefit, say realty players

High-end properties may see some drop in demand, they add

The removal of indexation benefit while calculating the long-term capital gains (LTCGs) on the sale of property may not have a significant impact on the demand and prices in the real estate sector in the long term, according to a Business Standard analysis of responses by ten developers and consultants. But it would impact the high end properties which may see a drop in demand, they said.

On Tuesday, Finance Minister Nirmala Sitharaman in her Budget 2024 speech announced the removal of indexation on property sales and lowered the LTCG rate from 20 per cent to 12.5 per cent. The ministry later clarified that properties purchased before April 1, 2001, would continue to enjoy indexation.

 

Harmohan Sahni, chief executive officer of Raymond Realty said he sees "no impact" on sales from "actual users".

"The investors will also be eventually enthused as this creates a level playing field between all asset classes," he said, adding the property prices are also likely to stay "stable to strong".

Dhaval Ajmera, director of Ajmera Realty & Infra India Ltd said these changes were "positive" for the sector, aligning with other asset classes like equity, stocks, and gold.

"This adjustment is expected to make real estate a more attractive long-term investment," he said.

Swaroop Anish, executive director and CEO of residential segment and business development at Prestige Group said that this would "encourage property upgrade in shorter intervals", boosting the demand for new real estate.

Shabala Shinda, Partner at Grant Thornton Bharat explained that the reduction in LTCG rate to 12.5 per cent mitigates the increase in tax cost which would have arisen if indexation were not available.

"The cost inflation index averages around 6 per cent since 2001 till date and the reduction in the tax rates would provide equivalent benefit to the investor equivalent to 9 years," he said, adding that an investor holding a property for less than 9 years would be better off.

"Given this fact, it appears that the demand may not impact significantly."

Pradeep Aggarwal, founder and chairman at Signature Global (India) Ltd also welcomed the move and said that it is being done to "simplify the tax structure".

After the announcement on Tuesday, most realty stocks tumbled. Nifty Realty index closed 2.29 per cent in the red. On Wednesday, however, it closed 0.78 per cent in the green.

Abhishek Raj, founder and CEO of Jenika Ventures said that there may be a "transitory drop" in demand and prices of homes in India but "the real estate market has good medium to long-term prospects due to fundamental demand and supportive governmental actions".

Some experts pointed out that in the short-term the highest impact could be seen in high-end properties as they may see a sharper reduction in prices. "High-value properties will be most impacted and we may see a reduction in demand for them," said Prashant Thakur, Regional Director and Head – Research at Anarock Group. He added that the primary home buyers might not be affected as much since their main motive for buying homes is to use them for residence, not for investment returns.

Anuj Puri, Chairman of Anarock Group, said the move to remove indexation available under second proviso to section 48 for calculation of any long-term capital gains presently available for property, gold and other unlisted assets as such may have a negative impact as it directly impacts real estate investors.

Ashwinder R Singh, CEO Residential at Bhartiya Urban added that the "market will likely self-correct over time".

"The Indian real estate market continues to offer value through long-term capital appreciation and rental income, which makes it aptly suitable for both end-users and investors," said Ankush Kaul, chief business officer at Ambience Group.

To tackle the short-term uncertainty, some officials also recommended adopting adaptive pricing techniques.

"Developers and investors can help lessen the short-term effects of speculative volatility by implementing adaptive pricing techniques and strategic market interventions, which will eventually provide a more stable and sustainable growth trajectory," said Vijay Kamboj, founder at BRIC-X Infra Pvt Ltd.

Anarock's Thakur said that developers may respond by offering incentives and focusing on affordable housing to attract buyers in the primary sales market.