Could render home not-so-sweet home
cost indexation in property transactions, although simpler to administer and resulting in lower capital gains tax, may adversely impact slower markets, typically smaller towns and less desirable districts of large cities. The new tax dispensation favours property investments that yield positive inflation-adjusted returns. Where this condition is not met — housing prices not having grown much faster than prices overall — the homeowner faces an extra tax hurdle in disposing of his property. This could cause greater illiquidity in select micro markets and affect urban growth. The same forces would be at play during a property downcycle, when homeowners may put off decisions to sell, contributing in the process to factors that led to the slump.
#Budget 2024 with ET
Budget Highlights: Your 2-minute guide
Tax tweaks, jobs & more: All that FM announced in Budget
What's cheaper and what's costlier? Here's the list
Since housing is prone to spatial and cyclical factors, indexing against inflation offered a built-in policy ballast. The gov may now have to put specific counter policies in place to make the housing market more liquid and less volatile. The sector has among the highest forward and backward linkages in the economy, which calls for such intervention. The supply response to housing demand is slowed by land acquisition and floor area restrictions. So far, this has been an issue specific to state and local governments. GoI may have waded into the issue with its tax proposal.
The intended objective of removing tax arbitrage to make household savings more fluid across asset classes may not be served if the housing market were to become more illiquid. It would further trap capital stranded by the varied implementation of
