More elbow room for homeowners

Grandfathering provision for LTCG tax on property purchases before July 23, 2024, will provide relief to a large segment of homeowners. Since GoI's intent in moving to a uniform LTCG tax across asset classes was not revenue-driven, the rethink over indexation benefits on housing investments should smoothen the transition to the new system.

Going forward, however, the new tax structure could affect holding periods, disclosure levels and liquidity in the housing market. These can be addressed through specific countermeasures. Broadly, the gov should not be bearing the inflation risk of any investment. It is justified to not allow grandfathering provisions among other asset classes, such as gold. Low and uniform LTCG tax rates across financial and non-financial investments will help steer household savings towards more productive areas of the economy, thereby improving investor choice.

The carveout for housing investments is influenced by the scale of current household savings locked up in property and the low retail exposure to equity. Household saving trends are displaying a tendency to balance the anomaly, and the new LTCG tax should aid the process. Prospective property investors will weigh the tax-adjusted returns from alternative asset classes, where equity has delivered superior results. Changes in investment preferences aid financialisation and formalisation of the economy. It also lowers the pressure on the current account for an energy- and resource-constrained economy. The grandfathering provision allows households more elbow room to extract savings from the property for investment in preferred financial assets. Yet, a large part of the country's housing stock will remain locked in inflation-indexed capital gains.