5 Real Estate Stocks Poised to Benefit from the Revised LTCG Rules

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 as well as non-financial assets. The STCG on specified financial assets was also raised from 15% to 20%.

While traders were hoping for a decent increase in the exemption limit, it was only raised from Rs 1 lakh to Rs 1.25 lakh annually.

This revision got a big thumbs down from investors.

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.

Much to their relief, Finance Minister Nirmala Sitharaman recently made some revisions to the original proposal.

Taxpayers may be given a choice to either select a 12.5% LTCG rate without indexation, or a 20% rate with indexation for their property acquired before 23 July 2024.

The indexation benefit is particularly important for assets held over long periods, as it can significantly reduce the amount of taxable gain by considering the eroding effect of inflation.

This change in rule is positive for homeowners, especially middle-income class which are looking to sell and buy new property.

This also means that we'll 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)

First on this list is Macrotech Developers.

Macrotech Developers, formerly known as the Lodha group, is a leading real estate company specialising in luxury and affordable housing across major Indian cities.

The company has been involved in the real estate business since the 1980s.

For real estate businesses, debt has always remained an issue. Macrotech is facing this challengeby raising Rs 32.8 billion via qualified institutional placement (QIP). This reduced its net debt to Rs 30 bn.

Going forward, a strong project pipeline and expansion in existing and new markets provide revenue visibility for the company.

Last week, the company reported its Q1 earnings. Macrotech reported a 166% surge in its consolidated net profit to Rs 4.8 bn as against a profit of Rs 1.8 bn in the year-ago period.

The management is optimistic and expects strong bookings as the multi-decade housing up-cycle in India transitions from a low-income economy to a mid-income economy.

To know more, check out Macrotech's financial factsheet.

#2 Godrej Properties

Next on this list is Godrej Properties.

A major player in India's real estate market, Godrej Properties is known for its diverse portfolio, including residential, commercial, and mixed used projects.

In a recent investor presentation, the company's Chairman stated that the net debt and debt-equity ratio are both in line with the company's guidelines and at a satisfactory level.

This was after the company reported a 20% growth in its net debt to Rs 74.3 bn last week.

In its Q1 performance, Godrej Properties' consolidated net profit reached Rs 5.2 bn from Rs 1.2 bn in the year ago period.

The company is on track to reach Rs 270 bn in bookings by 2024-25, as well as surpassing its previous records for deliveries and collections.

The company recently entered into a strategic partnership with Kumar Properties to develop a significant residential project in Pune.

To know more, check out Godrej Properties financial factsheet.

#3 Prestige Estates

Prestige Estates is a prominent real estate developer with a focus on residential, commercial, and retail properties across South India.

The company focuses on mid-to-premium properties, with most projects concentrated in Bengaluru.

Prestige is a diversified developer, building residential townships, commercial spaces, retail centres, and even hotels.

Its strategic use of joint development models keeps land banking costs down, allowing them to expand their footprint.

As part of its future plans, Prestige plans to ramp up its rental income from the current Rs 5.5 bn to Rs 39 bn by financial year 2028.

It also plans to double its hotel portfolio from 1,489 keys currently to 2,969 keys over the same period.

The company plans to fund a capex of Rs 146 bn over the next four years, two-thirds of which will come from debt and the balance from internal accruals.

Prestige Estates has raised Rs 20 bn via optionally convertible debentures (OCD) from the Abu Dhabi Investment Authority and Kotak Alternate Investment Fund.

This is to fund land acquisition and approval costs for four identified projects, with a gross development value (GDV) of Rs 180 bn.

As of March 2024, the company had a future project pipeline of approximately 75 msf, to be launched in FY25. This provides strong revenue and profit visibility.

To know more, check out Prestige Estates' financial factsheet.

#4 Oberoi Realty

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

The company recently launched a new luxurious residential project in South Mumbai.

It develops residential, commercial, retail and social infrastructure projects. It also offers hospitality and property management services.

Over the years, Oberoi Realty has developed 42 projects across Mumbai, aggregating around 11.9 m sq. ft of space. Some of its marquee projects include Oberoi Garden City, Oberoi Mall, and Exquisite.

Presently, the company has two major projects under construction, totalling 2.2 m sq. ft.

However, the company's other new major projects have been completed but are yet to be fully booked totalling approximately 5 m sq ft.

Recently, the company acquired land in Gurugram, marking its first foray into the NCR region. Apart from this, it also completed the transaction for a land parcel in Thane.

To know more, check out Oberoi Realty's financial factsheet.

#5 DLF

Last on this list is DLF.

DLF is one of India's largest real estate developers with a comprehensive portfolio, including residential, commercial, and retail properties across major cities.

The company was recently in the news. It made headlines for selling over 1,100 flats at Rs 70 million in Gurgaon in just three days. As per the tweets doing rounds, there were at least 4,500 interested buyers.

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

The company recently posted its Q1 earnings and showed strong improvement across metrics. It reported pre-sales number of Rs 64 bn driven by the successful launch of Privana West.

The company has one more big launch coming up soon - Ireo - for next year after completing license transfer processes.

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

To know more, check out DLF's financial factsheet.

Conclusion

The Indian real estate sector offers potential, but selectivity is key.

Choosing the right real estate stock to ride this wave is not as straight forward as it seems.

The good quality stocks with strong brand name and execution track record, have already run up a great deal.

Seek companies with strong balance sheets, low debt, and a long and clean history of good intentions towards their shareholders.

Moreover, consider your risk tolerance and investment horizon. 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. Learn more about our recommendation services here...