It gives me immense pleasure to ink this statement as your Company continued to battlethe subdued external ecosystem. We registered stable topline numbers. And despite thesignificant headwinds we posted a positive bottomline. You would wonder why CHD is beingdefensive when the economy is surging ahead. Why CHD appears satisfied with decliningprofitability when most business houses are reporting healthy business growth. This isbecause even as the economy is back on the resurgence path with India moving up theranking in the global village the real estate sector continues to reel under the overhangof previous ills.
India's real estate market never fully recovered from the 2008 financial crisis. Andsince 2010 it has remained depressed with new launches falling by 78%.
The banning of two high-value currency notes in November 2016 came as a body blow asthe sector is known to deal with a lot of cash. And before the developers could catchtheir breath the government in May 2017 introduced RERA a policy that promises to makereal estate transactions more transparent.
Finally the Goods and Services Tax in July 2017 added to the woes owing to theuncertainties from the new regime. Developers could not pass on the higher tax burdenamidst sliding demand. Not surprisingly property prices tumbled in many cities.
Home purchases in the country fell to a seven-year low in 2017 despite sliding prices.New project launches fell 41% and sales of new homes fell 7% in 2017. There are stillhundreds of thousands of unsold properties which may take nearly two years to sell o_. Atthe end of 2017 India's residential sector appears to have shrunk to a fraction of thesize it was less than a decade ago the hard truth! And I honestly feel to havestayed afloat despite these challenging times is a success in itself. I place this successsquarely on the shoulders of my team whose unwavering focus and untiring efforts have madeit possible to survive amidst a significantly depressed external environment.
But all is not lost for the real estate sector. Last year India's real estate sectorsaw two major reforms come into force -- the Real Estate Regulatory Authority (RERA) andthe Goods and Services Tax (GST). While a landmark tax such as the GST is expected to havefar-reaching implications for sectors across the economy its impact on real estate as awhole is likely to be a mixed bag. The complete impact on construction costs is likely tounfold over the coming months. However aligning with the Housing for All by 2022'vision projects launched under the Pradhan Mantri Awas Yojna (PMAY) have been kept out ofthe purview of the GST.
For under construction properties the government has allowed one-third of an apartmentcost to be deducted towards the transfer of land and GST at the rate of 18% to be paid onthe balance amount which brings the effective GST rate on under-construction propertiesto 12%. Moreover completed properties as well as rented apartments have been kept out ofthe purview of the GST.
The other big reform RERA came into force on 1 May 2017. RERA was passed toensure accountability infuse transparency and bring uniformity in real estate practices.RERA has been implemented in 18 states and all union territories. Among the states thathave implemented RERA 11 have an active online portal.
In addition to regulatory reforms which I am confident will provide momentum to theailing real estate sector there are important trends which are playing out which promiseto make the real estate sector increasingly agile and aligned to global trends. 1)Innovative technologies such as artificial intelligence big data data science etc. arebeing adopted by corporates which are making mundane/back-end and regular businessprocesses increasingly automated. Additionally data analytics is now emerging as a keyfactor in determining how technology can be leveraged to improve business operations. 2)Another trend that is likely to become more dominant is the usage of innovative workplacestrategies as there is an inclination of occupiers to shift from exclusively focusing oncost management and space efficiency to also looking at talent retention. This wouldresult in wider adaptation of workplace strategies that align company goals with realestate needs by choosing workplace location and design to attract and retain talent.
3) Improved transparency in operations is likely to be a by-product of the variouslegislations (RERA GST REIT regulations eased FDI in construction) that have come intoforce recently with the complete impact of these legislations on business operationslikely to unfold in the coming years.
Owing to these factors the real estate sector is being re-looked upon as an investmentoption. Foreign investments into India's real estate has improved in 2017 after a two-yearlull indicating revival in a sector that's among the largest job creators for theeconomy.
Message to shareholder
The tide is turning for the real estate sector. The improvements in the regulatoryframework are expected to alter the fortune for the real estate sector over the comingyears. Furthermore improved corporate performance and government policies promise toincrease the disposable income in the hands of the average Indian. This reality shouldhelp the real estate sector gain momentum over the coming years. At CHD having madechanges in our operating model and freed our management bandwidth for strategic thoughtand action we hope to envision and capitalise faster on emerging opportunities therebystrengthening our growth momentum over the coming years.
R K Mittal