How this Modi Govt move made luxury home sales jump in February

The bull run in the luxury property market continued in February 2023 even as prices and lending costs significantly increased.

luxury home sales
Luxury home sales jumped in February. Representational image

The bull run in the luxury property market continued in February 2023 even as prices and lending costs significantly increased. Experts believe that the luxury home buying rush of last month could be attributed to the recent Modi Government’s proposal to cap the deduction on capital gains on investments in residential houses to Rs 10 crore.

For instance, as many as 9268 residential units in Mumbai were registered in February, of which 13% properties were priced at Rs 2.5 crore or above, according to Knight and Frank India data. The average value of the property registered in Mumbai city (BMC) was Rs 1.9 crore, which was 65% more than the average value of properties registered in February 2022.

Interestingly, the total number of property registration in February 2023 was 8% lower than the same month of the previous year even as revenue collections in the month was highest in the last five years.

Anuj Puri, Chairman of Anarock Group, says that higher revenue collection despite a fall in the number of registrations indicates that the sale of big-ticket price homes, or luxury homes, saw a significant movement last month.

Also Read: Homebuying rush in Mumbai

Puri believes that the Government’s move to cap capital gains at Rs 10 crore could be one of the major factors behind the luxury homebuying rush.

“One major factor for high sales of big-ticket price homes in Mumbai and other top cities could be the government’s recent move in the Union Budget 2023-24 to cap capital gains at INR 10 Cr. This new move will come into effect from April 2023. Thus, to save tax on capital gains, the HNIs across top cities including Mumbai are rushing to close luxury housing deals before the financial year ends in March,” said Puri.

What has the Govt proposed?

In Budget 2023, Finance Minister Nirmala Sitharaman proposed to cap the deduction from capital gains on investment in residential houses under Sections 54 and 54F to Rs 10 crore. The decision is being seen as a reason behind the luxury property buying rush in cities like Mumbai in February.

What’s the implication?

As per the Government’s budget 2023 proposal, if you make a gain of over Rs 10 crore on selling a house then the maximum benefit you can avail will be up to Rs 10 crore only if the amount is invested in another property.

From 1st April 2023, capital gains over Rs 10 crore will be taxed.

“Under this new move, if one sells a house/other assets including equities and his/her gains are more than INR 10 crore, then the maximum benefit that can be availed is only up to INR 10 crore when invested into another property. Capital gains of over INR 10 Cr will henceforth be taxed from April 2023,” says Puri.

Also Read: Mumbai Property Price: 1000 sqft flat costs over Rs 1.2 crore or even more

What happened earlier

Real estate experts say that HNIs/ultra HNIs used to re-invest into ultra-luxury properties earlier to save tax from their capital gains. The Government’s new move, however, could be a deterrent for luxury housing sales to an extent once the new provision comes into effect.

Luxury housing sales in top 7 cities

There was an 18% jump in luxury housing sales in the top 7 cities in 2022. Mumbai Metropolitan Region (MMR), Delhi-NCR and Hyderabad led the MMR, NCR and Hyderabad have led luxury homes sales in 2022 with approx. 50,100 units sold in these three cities altogether. Back in 2019, together they saw sales of mere 14,050 luxury homes in the entire year, according to Anarock data.

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First published on: 02-03-2023 at 10:23 IST
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