Realty stocks recover from indexation removal impact, rebound from Budget-day plunge

By July 26, however, most of the stocks has recovered significantly, regaining about Rs 26,700 crore worth of market capitalisation.

Realty stocks , which came under heavy selling pressure last week after Finance Minister Nirmala Sitharaman announced in the the Union Budget 2024 that the indexation benefit for the asset class will be removed, have partially recovered on July 29.

The recovery is due to a large section of experts believing that the changes would not have such a drastic impact as estimated earlier, especially for those who again re-invest the gains in the real estate segment.

On July 23, soon after Finance Minister Nirmala Sitharaman presented the budget, the BSE Realty Index plunged 2.15 percent and the 10 stocks – including DLF, Oberoi Realty, Sobha Developers, Lodha, Godrej Properties, and Sunteck Realty among others -- that comprise the index lost around Rs 17,125 crore in market value.

The fall in realty stocks was after the government removed the indexation benefit for calculating long-term capital gains (LTCG) on non-financial assets, including property, and reduced the LTCG tax rate to 12.5% from 20%. This move aims to rationalize capital gains tax across all asset types.

By July 26, however, most of the stocks recovered significantly, regaining about Rs 26,700 crore worth of market capitalisation. DLF, which lost over Rs 5,482 crore on July 23, recovered as much as Rs 4,925 crore by July 26. Similarly, Macrotech Developers, which was initially down Rs 6,000 crore, gained over Rs 3,150 crore.

Brigade Enterprises, which lost Rs 1,060 crore in m-cap on Tuesday last week when the budget was presented, recovered Rs 940 crore by Friday last week. Oberoi Realty, which lost Rs 1,976-crore m-cap, is now up by Rs 3,477 crore. Other stocks like Prestige Estates Projects, Sobha Developers and Sunteck Realty also registered a rise in their market capitalisation since the day of the budget.

Meanwhile, CLSA, in its latest note, stated it believes the new regime won't impact end-users who re-1invest in a new house but will negatively affect investors who sell and re-invest in other assets, especially those with a holding period of less than five years and property appreciation below 10 percent per annum.

In a similar context, a report by Kotak stated that the tax change will have minimal impact on end-users buying homes for personal use. For investors, the effect will vary based on the property's price appreciation relative to the index and the holding period.

Properties with higher appreciation, compared to historical index calculations will benefit under the new regime, while those with lower or no appreciation will be worse off, stated the report.

The budget announcement also said the short-term capital gains (STCG) tax rate remains unchanged at 20 percent and properties held before 2001 will still receive indexation benefits. The new taxation norms have been implemented with immediate effect ie from July 23, 2024.

Analysts have further said that markets like Bangalore, Hyderabad, and Pune, driven by end-users, will be least affected, while NCR and Mumbai, with higher investor activity, will likely be more impacted. There will be no impact on super-luxury apartments priced above Rs 100 crore, as the indexed acquisition cost was capped at Rs 100 crore in the last year’s budget.

Other announcements related to the real estate segment include the government encouraging states to lower stamp duty, with potential reductions for women buyers, a higher Rs 30,200 crore allocation for Pradhan Mantri Awas Yojana Urban in FY25. Further, income from renting out a house will be classified as ‘income from house property’ only.