Reduction of LTCG from 3 years to 2 Years will give Investor better returns in Real Estate.
Real Estate is always termed as a Long term asset class to hold and sell and to be eligible for Long Term Capital Gains. In the Budget 2017, the real asset class has come closer to the other financial products and hence now a Buyer or an Investor can buy a Home and Sell in 2 Years and reinvest into another project after taking the advantage of Long Term Capital Gains. This makes him more fluid and the investor can plan his finances and products well and a very very tax efficient investment.
So considering that if you Buy a Home in 2017, get say 20% appreciation in 2 years and then reinvest in another property in 2019 and sell again in 2019 and keep churning the cycle, then you can compound your investment very well. The only thing here to watch out will be the entry and exit loads in real estate and also take advantage of the Maharashtra Government rules for a rebate on Stamp Duty if you selling after registration of 1 year.
It is both good and bad for the Developer at the same time, good because the developer will continue to get Home Buyers and Investors at different stages of construction of the project, and bad because he will have competition from his own investor in 2 years in case the investor wants to sell at lower than the developer price.
Earlier, for the investor it was a 3 Years plus 3 Years wait and post demonetization he can’t get any “Cash” in the transaction so this alignment of 2 years plus 2 Years helps him make more money more opportunity to exit and enter into another traction or even completely exit out of the real estate by paying whatever the Long Term Capital Gain tax is which is still cheaper than the current rate of 30% plus.
More and more investors and fence sitters who did not want to get into the real estate investment will now be attracted towards real estate.
On the indexation side, for the Long Term Capital Gains computation now the year will 2001 instead of the year 1981.
Most of the Home Buyers who have bought the properties post 2001 will not be impacted in any way and they will continue to get the indexation benefit as they would get. But homeowners who have bought the properties before the year 2001 would loose the indexation benefit and their LTCG would be done with the base year 2001. This would mean more taxation for the Older Homes vs Newer Homes.
The thought process behind this would be that people who would have bought a 2 BHK flat say in Maker Tower in Cuffe Parade in the year 1981 or so would have paid to say around 30 Lacs and now the same flat will be worth 10 Cr, so the tax goes up based on the fact that your Capital Gain was substantial.
Author – Sandeep Sadh – ssadh@mumbaipropertyexchange.