The latest budget has significantly altered the real estate landscape, with diverse impacts across various market segments. Long-term property investors face reduced returns due to the withdrawal of indexation benefits, while first-time homebuyers might benefit from more stable prices. Developers, particularly those in the affordable housing sector, may experience growth despite increased project costs. The luxury real estate market is poised for a slowdown, potentially creating opportunities for value investors. Additionally, urban rental markets are set to see increased demand, and financial institutions may adjust their loan strategies. Here’s a breakdown of the changes and their implications.
Aman Gupta, Director of RPS Group, notes that long-term property investors will likely be affected by removing indexation benefits on capital gains, potentially reducing returns by up to 20% for properties held over two years. Conversely, first-time homebuyers may benefit as reduced speculative investments could lead to more stable housing prices, making it easier for new buyers to enter the market. Due to these changes, Gupta anticipates a 5-7% decline in property prices in overheated markets over the next 12-18 months.
Real estate developers are facing uncertainty following the budget. LC Mittal, Director of Motia Group, indicates that removing some tax benefits will increase project costs by 5-10%, potentially delaying new launches. However, Mittal forecasts a 15-20% growth in affordable housing next fiscal year, contrasting with an expected 8-10% decline in premium property developments.
Anurag Goel, Director at Goel Ganga Developments, predicts significant disruption in the luxury real estate market due to increased taxes on property transactions, which could slow premium property sales by 15-20%.
Siddharth Maurya, Founder & Managing Director of Vibhavangal Anukulakara Private Limited, expects rental demand in cities like Mumbai, Delhi, and Bangalore to rise by 8-12% over the next two years.
Shiv Garg, Director at Forteasia Realty Pvt Ltd, highlights broader impacts on the real estate sector. He predicts a 10-15% increase in home loan disbursements for properties under ₹50 lakhs, driven by price stabilization and a focus on affordable housing. Conversely, loans for luxury homes may decrease by 5-8%. This shift could spur competition in interest rates and innovations in loan products aimed at first-time homebuyers and the affordable housing sector.
Impact of removal of indexation on real estate sector
The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, proposed eliminating the indexation benefit for homeowners. This adjustment, which previously allowed property prices to be adjusted for inflation, will affect India’s real estate sector.
Indexation previously reduced taxable gains by adjusting asset purchase prices for inflation. Its removal could increase the tax burden on sellers. The new long-term capital gains (LTCG) tax rate is set at 12.5%, down from 20%, but without the benefit of indexation. This change is expected to have significant impacts on the real estate market.
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