Real estate stocks fall after Finance Minister's LTCG proposal

New Delhi, July 23 : Real estate stocks fell after Finance Minister Nirmala Sitharaman on Tuesday proposed to eliminate the indexation benefit on calculating long-term capital gains tax (LTCG) on real estate.

The Nifty Realty index was down 2.29 per cent at closing. DLF stock fell more than 6 per cent to a day’s low of Rs 778.2 over the Budget 2024 announcement.

The Finance Minister, in a bid to rationalise the capital gains tax regime, changed the LTCG tax rate to 12.5 per cent across all financial and non-financial assets. This resulted in the LTCG tax on property falling from 20 per cent earlier.

“The continued focus on PMAY-Urban with an investment of Rs 10 trillion over the next 5 years is likely to result in a positive move for the affordable housing real estate segment. However, the removal of the indexation benefit at the time of the sale of a property is likely to result in a higher tax outgo. Hence, this is a negative decision for the sector,” said Anupama Reddy, Vice President & Co-Group Head - Corporate Ratings, ICRA Limited.

“While the indexation benefit for the real estate sector has been eliminated, the reduction of the tax to 12.50 per cent from 20 per cent is positive,” added Shrikant Chouhan, Head Equity Research, Kotak Securities.

Meanwhile, benchmark indices also fell, with the Nifty 50 down 0.6 per cent, or 136 points, and Sensex down 350 points.

Other realty stocks also tanked. Macrotech Developers was down 3.6 per cent, Godrej Properties down 5 per cent, Prestige Estates down 5.3 per cent, and Phoenix Mills down 2.1 per cent.

Bhavik Thakkar, CEO, Abans Investment Managers, noted that the removal of indexation benefits for property and other assets “will increase tax outflows”.

“For example, if you had bought a property for Rs 100 in 2001 and sold it for Rs 500 in 2024, as per earlier tax regime (when indexation benefit allowed), the tax outflows even at a 20 per cent rate would have been Rs 27.4 (as CII for FY25 is 363) whereas according to today’s budget announcement, the tax outflow at 12.50 per cent rate would be Rs 50. This may potentially impact secondary sales of properties,” Thakkar explained.

“This uncertainty has cast a shadow over buyer sentiment in the housing market. While initial reactions are negative, the situation continues to evolve, influencing stock movements today,” said Raj Vyas, Vice President - Research, Teji Mandi.