These five real estate stocks are poised to benefit from the revised rules on long-term capital gains tax

In her budget speech last month, finance minister Nirmala Sitharaman made significant changes to the long term capital gains (LTCG) and short term capital gains (STCG) tax rules. 

The LTCG was increased from 10% to 12.5% for both financial and non-financial assets. The STCG on certain financial assets was also raised from 15% to 20%. Additionally, the removal of the indexation benefit for long-term capital gains meant investors could no longer adjust the purchase price for inflation, leading to higher taxable gains. This got a big thumbs down from investors. While traders were hoping for a decent increase in the exemption limit, it was only raised from ₹1 lakh to ₹1.25 lakh a year.

Much to their relief, though, Sitharaman recently revised the original proposal in the face of backlash. 

For property acquired before 23 July 2024, taxpayers will be able to choose between 12.5% LTCG tax without indexation, or 20% with indexation. The indexation benefit is particularly important for assets held over long periods as it can significantly reduce the amount of taxable gains by factoring in the effect of inflation.

Also read: Reintroduced indexation benefit for property disallows loss offsets, excludes NRIs and companies

This change in rule is positive for homeowners, especially those in the middle class who are looking to sell and buy property. It also means that we should see more new property deals, which is a big win for real estate players.

Let’s look at the top companies that stand to benefit.

#1 Macrotech Developers (Lodha)

Macrotech Developers, formerly known as the Lodha Group, is a leading real estate company that specialises in affordable and luxury housing in large Indian cities. It has been in the real estate business since the 1980s.

Debt is always a big issue for real estate companies. Macrotech is taking on this challenge by raising ₹3,280 crore via a qualified institutional placement (QIP), which has reduced its net debt to ₹3,000 crore.

A strong project pipeline and expansion in existing and new markets provide revenue visibility to the company.

Last week, Macrotech reported a 166% surge in its consolidated net profit to ₹480 crore, from ₹180 crore a year ago. Management expects strong bookings in the multi-decade housing up-cycle as India transitions from a low-income to a middle-income economy.

#2 Godrej Properties 

A major player in India’s real estate market, Godrej Properties has a diverse portfolio that includes residential, commercial and mixed-use projects. 

In a recent investor presentation, the company’s chairman said net debt and the debt-equity ratio are both in line with the company's guidelines. 

This was after the company reported a 20% growth in its net debt to ₹7,430 crore last week. Consolidated net profit hit ₹520 crore in Q1 from ₹120 crore in the year-ago period. The company is on track to touch ₹27,000 crore in bookings by the end of FY25 and surpass its previous records for deliveries and collections.

It recently entered into a strategic partnership with Kumar Properties to develop a large residential project in Pune. 

#3 Prestige Estates

Prestige Estates is a prominent real estate developer that focuses on residential, commercial and retail properties across south India. It specialises in mid-to-premium properties, with most projects concentrated in Bengaluru. It builds townships, commercial spaces, retail centres and even hotels. Its strategic use of joint development models keeps land banking costs down, allowing it to expand its footprint.

Prestige plans to ramp up its rental income from ₹550 crore to ₹3,900 crore by FY28. It also plans to double its hotel portfolio from 1,489 keys to 2,969 keys by then. 

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It has plans for ₹14,600 crore of capex over the next four years, two-thirds of which will come from debt and the rest from internal accruals.

It has raised ₹2,000 crore via optionally convertible debentures (OCDs) from the Abu Dhabi Investment Authority and Kotak Alternate Investment Fund to fund land acquisition and approval costs for four identified projects with a gross development value of ₹18,000 crore.

As of March 2024, the company had a project pipeline of about 75 million square feet to be launched in FY25. This provides strong revenue and profit visibility.

#4 Oberoi Realty

Oberoi Reality is a leading real estate developer known for premium residential and commercial properties, primarily in Mumbai.

The company develops residential, commercial retail and social infrastructure projects, and offers hospitality and property management services. It recently launched a luxury residential project in south Mumbai.

Over the years, Oberoi Realty has developed 42 projects across Mumbai, aggregating around 11.9 m sq ft. Its marquee projects include Oberoi Garden City, Oberoi Mall and Exquisite. It currently has two major projects under construction, totalling 2.2 million sq ft. However, completed projects spanning about 5 million sq ft are yet to be fully booked.

The company recently acquired land in Gurugram, marking its entry into the National Capital Region. It has also completed the transaction for a land parcel in Thane.

#5 DLF

DLF is one of India’s largest real estate developers and has a comprehensive portfolio that includes residential, commercial and retail properties in major cities. The company recently made headlines for selling more than 1,100 flats in Gurugram at ₹7 crore each in just three days.

The rise of the middle class and a shift from rural to urban has long been a key theme in India's growth story. DLF is among the companies that are benefiting from this trend.

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The company recently posted its Q1 earnings, showing strong improvement across metrics. It reported pre-sales of ₹6,400 crore driven by the successful launch of Privana West. It has another big launch – Ireo – coming up next year, once the license transfer is completed.

Going forward, the company expects strong revenue and profit growth as its sales pipeline looks promising, with launches planned for Goa.

Conclusion

The Indian real estate sector offers potential, but choosing the right stock is key. This is not as straightforward as it might seem. Good-quality stocks with a well-known brand name and strong execution have already run up a great deal. 

You should look for companies with strong balance sheets, low debt, and a long history of good intentions towards their shareholders. Also consider your risk tolerance and investment horizon, and do your research before making any investment decisions. 

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

This article is syndicated from Equitymaster.com