Removal of indexation benefit: NCR, Mumbai property markets to be adversely impacted, notes CLSA

The announcement dampened investor sentiment as people will now have to pay more in taxes on profit earned by selling their properties. Indexation allows the sellers to adjust inflation rate while selling their assets. Now, since the benefit is removed, they will have to shell out more.

Reacting to this, all realty stocks tumbled in Tuesday's trade. On Wednesday; however, the stocks recovered. The Nifty Realty index was trading over 0.50% higher in the afternoon deals.

Commenting on the tweaked rule, analysts at CLSA said they believe it is unlikely to impact end-users who sell their existing house and reinvest in a new house, but it will impact investors who sell their house (investment) and reinvest in other asset classes.

“We believe the impact of this new regime is likely to be negative for investors with holding periods of less than five years and where property price appreciation is moderate (less than 10% p.a.),” analysts at CLSA wrote in a report dated July 23, 2024.

• The government has clarified that the removal of indexation benefits will not be applicable to old properties held before 2001, which would continue to get indexation benefits.

• The new norms are applicable with immediate effect, ie, from July 23, 2024. This move is unlikely to impact the end-users who sell their existing house and reinvest in a new house (LTCG is not applicable).

• The impact of this new regime would be neutral/marginally beneficial for investments with longer holding period (>10 years) and where property price appreciation is at >10% p.a.

• CLSA believes markets like Bengaluru, Hyderabad and Pune, which are end-user driven markets, will be the least impacted. Markets such as NCR and Mumbai, which have higher investor activity, are likely to be adversely impacted.

• There will be no impact for super-luxury apartments.