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Real Estate Stocks Fall After Indexation Benefit Removed on its LTCG Tax

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Synopsis:

The Nifty Realty Index fell sharply post-budget speech, with key stocks losing 2%-6%. Changes in Long Term Capital Gains Tax and removal of indexation benefits impacted investor sentiment, despite a strong start to 2024 for real estate stocks.

Real Estate Stocks Falls on Removal of Indexation Benefit

The Nifty Realty Index emerged as the top sectoral loser on Tuesday following Finance Minister Nirmala Sitharaman's Budget speech. The index saw significant declines, with eight out of its ten shares, including major players like DLF and Godrej Properties, recording losses ranging from 2% to 6%.

Major Losers in the Realty Index

Mumbai-based Sunteck Realty and Macrotech Developers share prices each experienced nearly a 4% drop. Other notable losers included Brigade, Godrej Properties, and Oberoi Realty, all of which saw declines between 3% and 4%.

Budget Announcement Impact

The downturn followed the Finance Minister’s announcement of the removal of indexation benefits for property, gold, and other unlisted assets. Indexation adjusts the purchase price of an investment for inflation, resulting in a higher purchase price and lower taxable profits. 

Its removal simplifies the calculation of capital gains but eliminates a method by which taxpayers could lower their taxable income.

Profit Booking and Market Performance

The real estate sector also faced profit booking pressures following substantial gains earlier in the year. The Nifty Realty Index had risen by 35% in 2024, with Sobha, Phoenix Mills, and Godrej Properties share prices experiencing gains between 55% and 85%.

On Tuesday, DLF share price ended 3% lower, while Sunteck Realty share price saw a 4.5% decline.

Key Takeaways

The combination of profit booking and budgetary changes led to the sharp declines in the Nifty Realty Index. The reduction in LTCG Tax to 12.5%, offset by the removal of indexation benefits, significantly impacted investor sentiment, leading to a re-evaluation of the real estate sector's prospects.

Despite the immediate negative reaction, the long-term impact of these changes remains to be seen, as investors and developers adjust to the new tax landscape. The strong performance of real estate stocks earlier in the year highlights the sector's potential, but recent budgetary shifts may temper future gains.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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