Long term capital gains tax benefits on housing, which could earlier be availed after three years has been brought down to two years by finance minister in the Budget. The move is aimed at improving transactions, especially since demonetisation has impacted annual sales bringing them to a six year low, according to some estimates. “It is (the Budget proposal) aimed at higher traction of secondary sales no doubt,” said Neeraj Sharma, director at Grant Thornton India.

Although there is no data to ascertain exactly how sales volume have declined due to the highly fragmented nature of the secondary market, it can be inferred that the crash might be deeper than the primary segment.

A January report released by Knight Frank India said that demonetisation has brought the market to a complete standstill.

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Developers refrained from announcing any new launches and buyers turned extremely cautious before committing on purchases. The fourth quarter numbers show that demonetisation has had an adverse impact on the real estate market that was barely recovering from its earlier sloth.

Sales volume dropped by 44% year-on-year during the October–December period and new launches fell by a massive 61% during the same period.

Though the proposal is not expected to materially move sales on ground, still, “it is a step forward as it nudges us towards more standardisation, the lock-in period for equity investments is just one year for instance,” said Sunil Rohokale, managing director and CEO at ASK Property Advisors.

The near term pain notwithstanding, it will have lasting impact on the long term marketability and competitiveness of real estate as an asset class, reiterated Samantak Das, chief economist and national director at Knight Frank, India. That the indexation number, which links the capital gains to the inflation rate will now consider 2001 rates and not 1981 rates will make profitability sweeter for individuals.

But it is unlikely the regulatory changes can nudge a seller at the moment since the anticipation of a price reduction is so rife, only the desperate will risk a sell.

However the exemption that has been extended to JDA (Joint Development Agreements) will be more pertinent as it is expected to provide a stimulus to land owners. “At the moment, land owners are liable to a capital gains tax when they sign a JDA because it is treated as a sale,” said Sharma. The tax is charged between 20% and 30%, depending on the status of the owner, whether it is a company or an individual, he added. In the recent past, companies like Godrej Properties, DB Realty, Radius Developers, Wadhwa Group, Unitech, Tata Housing, Rohan Lifespaces and Mahindra Lifespaces have signed JDAs with either an individual or another company.