Corporate Grapevine     

Published: July 31, 2024
Updated: July 31, 2024

Axing LTCG rule will hit realtors

Despite scraping together a majority, the Modi government has shot itself in the foot by coming out with a disastrous budget. The removal of inflation indexation benefits for properties has hit the middle class and the poor the hardest.

Although the long-term capital gains tax rate has been reduced to 12.5% from 20%, the removal of indexation may dampen investor sentiments, particularly in the high-end segments where returns hover around 10-11% per annum.

This will hit real estate companies hard as investors may shun buying new properties. Analysts say that for properties with expected returns below 10-11% per annum, investors may face higher capital gains tax outflows, leading to decreased investments in this segment. The reduction in investor demand could make it difficult to take price hikes in the near term, as investors may be wary of large exposures due to higher tax outflows. Investors can expect real estate companies’ share prices to fall due to this disastrous move in the budget.