How Will New Indexation Rules Impact Ajmera Realty? | NDTV Profit
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00:00Deepak Shenoy joining us now on the show.
00:01He's founder and CEO of Capital Mind.
00:04Deepak, a bit of praise before we begin the conversation.
00:08I mean, your Twitter handle, your ex-handle,
00:13after the budget was done and dusted,
00:15an absolute pleasure to read.
00:18You go into every line of that document
00:20and you explain it so well.
00:21So I'm actually envious of the clarity
00:24with which you put out the details.
00:26So let me...
00:27Thank you so much.
00:28No, no, absolutely fantastic.
00:29It's like a ready reckoner.
00:31You just do it superbly.
00:33So, praise there for you.
00:35Now, having said that,
00:37you've still been very careful
00:39in letting people know
00:41what you actually think of the budget.
00:42I think you've been a little guarded.
00:46A little, yes.
00:46So, but I mean, I haven't yet formed an opinion,
00:50to be fair, because I went through all the budget.
00:52I was looking at it and I'm like trying to find
00:53those little loopholes perhaps.
00:56But I don't think at this point
01:00that I have the ability to say
01:03this is a blockbuster budget.
01:04This is not, of course.
01:06I don't expect one either.
01:07But it also is not something that is rank failure.
01:14I would have expected, in fact,
01:16this capital gains increase to have come next year.
01:18I don't think it would have been something
01:20that should have come this year at all,
01:22because of, you have these problems with dates, right?
01:26Every time you introduce a new date
01:28into the tax code, it's like another nightmare.
01:32Did you buy before April 1, 2023?
01:34Did you buy before January, 2018?
01:37Now you have a new date, which is July 23, 2024.
01:41So if you bought a fund,
01:43you sold a fund before this, your tax is X.
01:46You sold a fund after this, the tax is Y.
01:48It just makes it messy.
01:50I think the messiness is gonna cause a lot of angst.
01:54And as a PMS, we are gonna have to rewrite
01:56a lot of our tax logic,
01:58saying, did we sell for this account before July 23rd?
02:03Then the tax is 15%, otherwise it's 20%,
02:07or it's 10% and 12.5.
02:09And I would have preferred it to be a regular
02:13end of year kind of budget,
02:14because then you have time to plan it out.
02:18Overall, nothing magnificent.
02:19Apart from the regulatory headache,
02:22apart from the regulatory headache of the dates,
02:25in terms of making your life tougher or easier,
02:30tougher in this case, if in any way,
02:33short-term capital gains tax,
02:34long-term capital gains tax,
02:36STT on F&O, all of that,
02:39do you think it's really that much of a damper?
02:43So STT on F&O does not affect us, honestly,
02:46we're a lot smarter in this conversation,
02:47but it does affect some parts of the market
02:52where we have investments.
02:54Like if you have investments in stock exchanges or brokers,
02:57that that'll impact them.
02:58However, I feel here that the short-term capital gains
03:04increase to 20% was quite steep.
03:07They've only done 2.5% for long-term,
03:10they could have maintained the same thing
03:12for short-term as well.
03:14Because anyway, if you're doing 0.5s,
03:15you might as well do 17.5 on short-term.
03:18But it's also that they've brought a lot of other
03:22asset classes together.
03:23So now my customers now are worried about,
03:27should we now be selling our real estate now?
03:30Or should we wait now?
03:31What do we do with certain types of funds?
03:33And so on.
03:34So I think the operational complexity has increased.
03:37Apart from that, you've got a dampener in terms of tax.
03:41Now tax does two things.
03:43Honestly, it pushes people to a point
03:47where they kind of try to understand the taxation system.
03:49So that can take three to six months.
03:51And during this time,
03:52they're hesitant to put in a lot more money
03:54into the market, usually, when a tax changes.
03:57But once they're clear,
03:59then things kind of go back to normal
04:01and you get the normal kind of inflows.
04:03We saw this in 2018 also.
04:05But this time it seems quite different
04:07because people seem to be like, oh, it's okay.
04:11The numbers are not so bad
04:12and they still continue to invest.
04:14Usually the day after is the,
04:16when people have realized the tax has increased,
04:18is where there's some kind of disappointment.
04:19Doesn't seem to be that bad.
04:21So it could be that the market takes it quite differently.
04:25The hangover is not that bad the day after
04:27because it wasn't really a party yesterday.
04:30So,
04:33no, no, just on the real estate piece,
04:34just one question on that before Neeraj comes in,
04:38because you mentioned that your clients
04:39are asking you about it.
04:40Actually, everyone's asking everyone else what it means.
04:42A lot of clarifications have also come.
04:44Have you been able to sort of formulate a view
04:46on whether it's good, bad or ugly?
04:50Yes, I have a clear now, I'm in a thought process.
04:53So the three kinds of people, right?
04:55There's people who sell their houses and buy another house.
04:59No difference, because you can sell your house
05:01and buy another house and pay no tax.
05:03And this is the only asset class you can do it.
05:05You can't do it in stocks.
05:06I can't say, oh, I'll sell Reliance and buy ICICI
05:09and somehow the tax will vanish or go away.
05:13No, the tax man takes their cut.
05:15But in a real estate, you can sell one house
05:19and buy another house.
05:20And you can do this for up to two houses
05:24and not pay any tax at all.
05:27Given that the people who are living in their own houses,
05:30there is no difference for them.
05:31Then there are a bunch of people who've inherited properties
05:33or have owned properties from like 30, 40 years ago.
05:37This tax is actually beneficial to them.
05:39Because if you bought some property at some,
05:40I don't know, a thousand rupees or something like that,
05:43what does indexation mean to you?
05:45It doesn't mean anything.
05:46You have taken away indexation, yes.
05:48But if the property was worth thousand,
05:49even if I say there's 30% year on year indexation
05:53and you sell it for some three crores today,
05:55your indexed purchase value
05:57is not gonna be meaningfully high.
05:58So you're gonna pay tax on most of the returns
06:00that you make on this property.
06:02It may be property that you've inherited
06:04that you now have to share between siblings
06:06or uncles and all the aunts and all that stuff
06:10that you actually need to sell and realize the gains
06:13and then maybe use it in your business or whatever it is.
06:18And now you will be paying a lot lesser tax
06:20because earlier you were paying 20% tax on the proceeds
06:22given that the purchase price was really small.
06:25Now you're paying only 12.5.
06:27It's a lot better for these people.
06:29So these two categories of people,
06:31there is either no impact or there's a positive impact.
06:33The negative impact is for people who invested
06:35maybe a decade back or 15 years back
06:39and they invested in apartments
06:41where the gains haven't been so much.
06:43So you're now paying more tax
06:45because you don't get indexation.
06:47And unfortunately, this is also a very vocal crowd
06:50who is really unhappy that their apartments
06:53appreciated only 7%
06:55and therefore they don't get indexation and so on.
06:57But honestly, I mean, if you're getting something worth
07:01which is only doing 7%,
07:04why you should be taxed like an FD almost like,
07:07because FDs are taxed at 30% plus now for most people.
07:12So you'll end up with a lot lesser tax than 30%.
07:15You'll pay only 12.5%, which I think is still fair.
07:19So I don't think this is a massive deal.
07:21Real estate continues to be pampered in a lot of ways.
07:24Like I said, they can do the taxation.
07:26They get-
07:26I saw you saying that,
07:29that real estate continues to be pampered,
07:31but I don't know why you keep comparing it to stocks
07:33because this is a need, right?
07:34People need houses to live in.
07:36It's an industry which creates so many jobs.
07:39So, you know, it shouldn't be treated the same.
07:42It's not an investment then.
07:44If it's a house that you live in,
07:46it's like you need a car or a two-wheeler.
07:49Why aren't you getting the same benefits?
07:50I can need two for my extended family.
07:53All right, we're talking about real estate
07:55with Deepak Sinha.
07:56And we'll, by the way, continue the conversation with him.
07:58But Dawal Ajmer, our director of Ajmer Realty with us
08:00to kind of throw some light.
08:01And by the way, Ruchit Jain is with us.
08:03We'll get to Ruchit in moments from now as well.
08:04But Dawal, good having you.
08:05Thanks for joining in.
08:08Explain to us what these changes
08:10that have been enacted yesterday
08:12mean from a developer perspective.
08:15Maybe new developments don't get impacted.
08:17Maybe they do.
08:18But just explain to us what it would mean
08:20for a real estate developer.
08:21And from your lens,
08:23what does it mean for an existing real estate homeowner?
08:29So, you know, fundamentally,
08:31what I see is that this,
08:33the new, obviously the biggest one
08:35is the long-term capital gain tax,
08:36which has come up as a new change.
08:39I see this, personally see this as a positive aspect
08:43because of two reasons.
08:44Number one, in long run,
08:45this is definitely going to be very positive.
08:47Dawal, sorry, Dawal, sorry.
08:49And I appreciate that.
08:50But let me clarify my question.
08:51What I was more keen to know
08:54is this indexation benefit removed,
08:57but the tax being cut from 20% to 12 and a half.
09:01So while you speak about long-term, which is fine,
09:03but give me clarity on the real estate aspects
09:05particularly as well.
09:06Oh yeah, that's where exactly where I was coming.
09:08Okay, fine.
09:10My whole idea was that in the long run,
09:12while this indexation benefit is taken away,
09:15but if you look at properties,
09:17which have been, you know,
09:18people would buy now and up until tomorrow.
09:21So my personal stake is
09:23that this will be a good benefit in long run.
09:27And number two is that, you know,
09:29real estate is now coming at par
09:32with an investment asset class like equity stocks,
09:35gold, et cetera.
09:36So definitely there will be a lot of investments
09:39being looked upon in real estate from today
09:42or now onwards as compared to what it was earlier.
09:44And secondly, you know, the other advantage is that
09:49with this indexation, which is continued up until 2001.
09:53So yes, there will be a little bit of change
09:55from 2001 to 24.
09:57That will be a, you know,
09:58differentiating factor for those properties.
10:01But I think majority,
10:02when we look at our historical properties
10:05or heritage properties,
10:06I think there we will not have too much of an impact.
10:09So I think overall, this is a good strategy as a long run.
10:13One quick follow-up, Dhaval.
10:14So two things that you said.
10:16You said between 2001 and 2024,
10:19there will be a little bit of an impact.
10:20I mean, that's 23 years.
10:22And that's a time when the real estate sector
10:25and the housing sector has grown leaps and bounds.
10:28A lot of people have bought properties
10:31and overnight they're trying to figure out
10:32what that kind of cut is.
10:33Don't you think this is a chilling factor
10:35for potential investors?
10:37What you seem to infer is in fact,
10:39that investors will come in now
10:41because it's on par with equity.
10:42Wouldn't it be the reverse?
10:45So as I said, you know, look,
10:47if I look at properties which were, you know,
10:50developed at 2001 or 2002,
10:53which were available, let's say 20 lakh rupees,
10:56probably they are today available at 80 lakhs
10:59or 60, 70 lakhs or something like that.
11:02So yes, that's the impact which is going to come
11:04for those kinds of properties.
11:06But you know, if those properties
11:09which are heritage-owned or historically owned,
11:12those properties will have less impact
11:15as compared to what probably in this 23, 24 years.
11:18And-
11:19I understand that, but I'm saying,
11:21isn't a lot of new construction in this 23, 24 years?
11:25And it is going to impact a lot of,
11:26will it not dampen sentiments?
11:28Not really, I personally don't see
11:31that it would dampen sentiments too much.
11:33At least if we look at some numbers,
11:36yes, on paper somewhere, we feel that some properties,
11:38every city, every state, every probably projects
11:42will have a different calculations
11:44and, you know, variations coming in.
11:46But if I generally speak, I think it should be okay.
11:50It shouldn't be that bad impact.
11:52What are the kind of queries that you're getting,
11:56you know, from potential buyers?
11:57I know that you have a lot of projects that,
12:00you know, people are looking at right now.
12:03You've, companies talked about it
12:04in the quarterly numbers as well.
12:06What are the kind of queries you're getting right now?
12:09Well, it's too early in the day,
12:11but right now what we see with the customers coming in
12:14is what I, you know, usually I'm seeing is
12:17there will be a surge of inquiries
12:19which will start coming in from customers
12:22for looking at buying of real estate.
12:25And with the other announcements related to,
12:28not directly related to real estate,
12:30but in terms of infrastructure and, you know,
12:32the PMAY schemes, all of that,
12:34I think in the next six months,
12:36we will see a lot of that impact coming in
12:38the market as well.
12:40Thank you so much, Dhaval Ajmera,
12:41Director of Ajmera Reality.
12:42They're saying that he thinks it's going to be a positive
12:45because investment in real estate, quote unquote,
12:48investment in real estate becomes more attractive.
12:50And I thought this was interesting, Neeraj,
12:52because this is something that Sameer Arora
12:53was talking about this morning,
12:55that when people talk about investment in real estate,
12:58it's usually warning bells,
13:00but you are going to possibly see it,
13:04people coming in because it's, I don't know,
13:06it doesn't give that kind of returns.
13:08I don't know why everyone keeps comparing
13:10real estate to equity.
13:11Even Deepak was making that point.
13:13It's not even apples and oranges.
13:16The returns too in the recent past haven't been that great,
13:18but let's wait and watch whether or not
13:21the actual buying is good enough,
13:24nevermind what's happened on the tax front,
13:26because frankly, that impacts majorly people
13:29who've had an old property for a really long time back.
13:32Maybe the new buyer doesn't really have
13:34that kind of property any which ways.
13:36Between the old and the new, there's 23 years.
13:39Everyone's talking about 2001 and 2024.
13:43There's nearly two and a half decades,
13:45which has happened in the middle.
13:47Yeah, the legacy, as they say.
13:50Okay, but that's interesting.
13:52So actually, Ruchit Jain is with us as well,
13:55and let's get Ruchit and Deepak Srinoy both on this.
13:58Deepak, sorry, you heard a developer's view as well.
14:00Just one quick question here, and then I get to Ruchit.
14:04Do you think that the sales momentum
14:09for real estate companies,
14:11because typically they say a real estate cycle
14:13lasts not necessarily for one or two years,
14:16and we are probably in the third year right now
14:18of this upcycle, and it lasts for seven, eight years.
14:20Do you think this upcycle continues
14:22no matter what's happened to the taxation front?
14:24And do you have real estate companies in your portfolio?
14:27Sorry if I missed that, Deepak.
14:28Good afternoon.
14:29Good afternoon, yes.
14:31No, I haven't.
14:33We have one, probably, real estate company
14:35in a momentum portfolio, which is more algo-driven.
14:38But the problem with real estate companies
14:42versus real estate is we often make the mistake
14:45of thinking that the real estate companies
14:47will make money when real estate makes money,
14:49which often is not the case.
14:52Real estate accounting is also incredibly complex now.
14:54So sales mean something, bookings mean something else.
15:00A bunch of other factors are coming to play.
15:02So by the time they actually realize profits,
15:04it's like six or seven years
15:06from the time the sale has initially been recorded.
15:08So by the time you actually get to a point
15:11where you can use the money, it's a long thought process.
15:15I think India is going to continue
15:17to want premium real estate to a large extent,
15:21simply because as we get richer
15:25and the availability of materials,
15:26better materials is out there,
15:28you're gonna want something better,
15:31a shade better in terms of interiors,
15:33a shade better in terms of parking and so on.
15:36So I don't think this is as much an investment avenue
15:39as it is an element of consumption.
15:42People are going to want to consume,
15:43they want to live in their own houses and so on.
15:46So that part of it continues to remain.
15:48Now, the market is going to have times of oversupply
15:52and times of over demand.
15:54We saw over demand perhaps just immediately after COVID,
15:57when you had a lot of supply taken away
15:59and new supply did not come
16:01because people didn't start projects.
16:03Today, I think going forward,
16:05we might actually see a small period perhaps of oversupply
16:11because a lot of supply came in in a bunched way.
16:17And you might see a lot of news now
16:19that talks about inventories being very high,
16:22unsold apartments being very high.
16:24So this is just a natural cycle in the whole game.
16:27But I don't think real estate as a sector
16:29will do really badly for people who want to buy
16:33and live in their own houses.
16:34It's a great way to consume
16:36and a great way to spend your money.
16:39Well, some of the real estate companies though,
16:42in the last two, three years,
16:44you would argue have made money.
16:46I mean, the growth in the numbers
16:48for an Oberoi, a Max, a Stage, a Prestige, et cetera,
16:52have been great
16:53and the returns have been very, very strong too.
16:55But yeah, Deepak's point is well taken.
16:58Richard Jain, a word on real estate stocks
17:01as they stand right now.
17:02And of course,
17:03how are you thinking about the markets currently?
17:07Yeah, hi, very good afternoon to everyone.
17:08Well, if you look at the real estate stocks
17:10and I think they have entered some corrective phase,
17:12not just after the budget,
17:14but last one month we have not seen
17:15any kind of significant run-up
17:17along with the broader markets.
17:18Nifty Realty Index made a high
17:20in the somewhere in the middle of June,
17:21around 17th or 18th of June
17:23and post that it has been consolidating within the range.
17:26Even you look at stocks such as DLF,
17:28the heavyweight such as DLF,
17:29it made a high of around 967 on 1st of April.
17:33And post April,
17:34we have not seen any kind of trended phase coming in.
17:36So I think already these stocks are,
17:38this sector is going through some corrective phase.
17:40It may not be a significant price-wise correction,
17:42but at least a time-wise correction should be seen
17:45which could continue in the near term.
17:46So not expecting any kind of big movement
17:49on the either side in the realty stocks in the short term.
17:53And yes, if you come into the broader markets,
17:55we believe that the broader markets
17:56or the indices also have entered
17:58some corrective phase recently.
18:00Now, post the election results outcome,
18:02if I look at the RSI and the Nifty price action,
18:06Nifty formed a low of around 21,280
18:09on the day of election results
18:10when the RSI was putting around 45 to 50 range.
18:14From there till the budget,
18:15we have not seen any kind of corrective phase in the markets
18:18and the markets have rallied up to 24,800 kind of range
18:22where the RSI from 50 has come on to 92, 93 kind of range,
18:26which is very overbought.
18:27Apart from that, if you look at the FIS positions,
18:29then FIS had about 82% positions on the long side,
18:32which again is a long heavy positions.
18:34Usually we see unwinding of positions
18:36when such high ratios are seen.
18:38So we are of the opinion that the markets
18:40have already discounted a good budget
18:42before the event itself.
18:45And hence we would see some kind of unwinding happening
18:48in the near term,
18:48maybe because of expiry next one or two days,
18:51we would see some kind of volatility getting continued.
18:55But overall, we do not expect any new highs coming in
18:57very soon in the markets.
19:00It could turn out to be a time-wise correction as well,
19:02but for next few weeks,
19:03we would see the index consolidating
19:05with a broad range of 23,800, 23,900 on the lower side
19:09and 24,800 on the higher side.
19:12Now the today and yesterday, the market breadth
19:14is quite good.
19:15Now, which is one indication that this may not turn out
19:18to be a major price-wise correction,
19:20but at least the momentum readings,
19:21which are quite overbought,
19:22that should cool off with a time-wise corrective phase
19:25for Nifty as well.
19:27You know, Deepak, I know you have to go,
19:29so I'm going to just get one view from you
19:31before I let you go.
19:33Just trying to understand that the kind of concern
19:36or I wouldn't even call it pain,
19:38a bit of trepidation that we're seeing
19:39in the markets right now.
19:41Do you see this continuing for a bit
19:44or is this just an occasion to cool off, right?
19:47Market was looking for a bahana
19:49and the tax change is what they got.
19:53Honestly, Tamannaah, the only guys who are falling
19:56are the banks and maybe some of the larger cap companies
20:00in the Nifty because mid-caps are up 1%.
20:02So I don't think this is just, you know,
20:05cause for gloom across the market.
20:08Some parts of the markets are sulking,
20:10but the rest of the market doesn't seem to be unhappy.
20:12So I don't think, you know, I don't think they're sulking.
20:17So to be fair, I don't know, you know,
20:21I really think in the longer term,
20:23people will get over the tax problem
20:25like they got over 2018
20:26and eventually we got a bull run in 2021.
20:29So if you have to sulk, you'll sulk maybe six months a year,
20:32but it doesn't even seem they're sulking one day.
20:34So, you know, a minus 0.2% is not meaningful.
20:39In 2018, when the government did the first time
20:41a long-term capital gains tax,
20:43the day after the budget was a minus 3% day
20:46and it doesn't seem like we're getting there.
20:48So I don't think this has been meaningfully taken bad
20:52by the market already,
20:54but long-term, I think India has a great future.
20:57So tax considerations apart,
21:01if you have to make money investing anywhere in the world,
21:04I think India is one of the top destinations
21:07that you might have.
21:08Of course, one of the others is probably Argentina,
21:11but let's assume that if you're in India,
21:14getting there is gonna be a little more complicated.
21:17So I think the Indian market is set to zoom
21:20because of relatively lower inflation
21:23and relatively higher, you know,
21:26better corporate balance sheets, much lower leverage now,
21:29and a path that's been created by the government
21:32to spend on infrastructure and increase opportunities
21:36in the manufacturing sector like never before.
21:38I think fundamentally quite strong.
21:41Taxation-wise, we're gonna sulk a while individually,
21:44but maybe not the market itself.
21:47You make a good point that actually
21:49the broader markets are okay.
21:51Banks are taking a beating,
21:53and that's really the story this afternoon.
21:54Thank you so much, Deepak.
21:56Always great to speak with you.