In a significant move that promises to positively impact the real estate sector, the Reserve Bank of India (RBI) has kept the repo rate unchanged at 6.5% for the ninth consecutive time. This decision, coupled with recent changes in property indexation rules, offers substantial benefits to both homebuyers and property sellers, making this an opportune moment for investment in real estate.
Stable interest rates play a crucial role in the real estate market. When interest rates remain consistent, borrowing costs for both homebuyers and developers stay predictable. This stability encourages continued investment in property, as potential buyers are more likely to commit to purchasing a home when they can anticipate manageable EMI payments.
Anuj Puri, Chairman of Anarock Group, emphasized that RBI's decision to maintain the repo rate aligns well with the recent announcement on indexation benefits. He noted that steady EMIs would likely lead to increased home sales, particularly in the price-sensitive affordable housing segment.
The government’s revised budget announcement has introduced changes to the Long-Term Capital Gains (LTCG) tax rate, offering taxpayers the option to choose between a 12.5% rate without indexation and a 20% rate with indexation for properties purchased before July 23, 2024. This change is designed to offer flexibility in tax liabilities, particularly benefiting those who have held properties for extended periods.
For properties that have appreciated significantly due to inflation, opting for the 20% tax rate with indexation can substantially reduce the taxable gain and, consequently, the overall tax liability. On the other hand, for properties held for shorter durations or in periods of low inflation, the 12.5% rate without indexation might be more advantageous, resulting in a lower tax burden.
This revision in indexation rules is expected to stimulate the residential property market by providing clarity and reducing potential tax burdens. Homebuyers are likely to feel more confident knowing they have flexible options for managing their future capital gains tax liabilities. This could lead to higher demand in markets where property values have seen significant growth.
The anticipation of these changes may also prompt some homeowners to sell their properties sooner to take advantage of the new tax regime. This increase in property listings could help maintain a balanced supply in the housing market, preventing sharp price hikes.
The decision to keep policy rates steady is a further boost to market sentiment. Shishir Baijal, Chairman and Managing Director of Knight Frank India, highlighted that stable interest rates are beneficial for both homebuyers and developers. With borrowing costs remaining constant, there is a greater likelihood of sustained investment in property, supporting ongoing residential sales momentum and boosting overall housing demand.
Dhruv Agarwala, Group CEO of Housing.com and Proptiger.com, added that the new tax regime clears up confusion and prevents potential negative impacts on the market. While the benefits of the revised indexation rules won’t apply to future transactions, they offer taxpayers more time to plan the sale of their assets, maximizing benefits and encouraging investment across various housing segments.
The combination of stable policy rates and new indexation benefits creates a favorable environment for both homebuyers and sellers. As interest rates remain unchanged, borrowing costs stay predictable, encouraging investment in the property market. Meanwhile, the flexibility offered by the revised LTCG tax rates provides significant advantages, particularly for those holding properties over the long term. As these changes take effect, they are expected to contribute to sustained growth and stability in the real estate sector.
Must Knows Articles
Other Taxation Articles