[ecis2016.org] Delays and defaults in builders’ payments to vendors and suppliers, not only affect the real estate market’s image but can also impact delivery timelines. We examine the scenario and what developers can do, to address this situation
When I joined this real estate company, I was exposed to an altogether new reality of vendor management, says the marketing head of a Noida-based real estate company, who had earlier worked in the hospitality industry, requesting anonymity. “Here, I had to literally look for excuses to give to the vendors, for endless delays in payments. I never realised before joining the real estate sector, that making a payment against an order was such a big issue.
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“Most of the reputed vendors either refused to work with the sector or else, they ask for upfront advance payment,” she explained.
Her experience underscores the distrust on the part of vendors and suppliers of housing equipment, bathroom fittings, tiles, cement, etc. Today, these suppliers are ready to offer big discounts but are not ready to provide credit, as they have had a tough time in recovering their dues from builders.
Reasons for poor vendor management
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Developers admit that there have been some bad precedents, as a result of which, service providers and suppliers who have businesses in other sectors, have refused to do business with real estate companies. However, there are certain ancillary industries that cannot do away with the Indian housing market. Their dependence on real estate is making them suffer, not in terms of orders, but in the billing cycle. For example, a section of home equipment suppliers even admit that over-dependence on builder contracts that ensure bulk buying, going overboard on commitments and under-utilisation of the retail network, are the major reasons why they are trapped in a vicious cycle today.
Developers, on their part, cite fiscal challenges, slow sales and approval bottlenecks, for these problems. Nikhil Hawelia, managing director of the Hawelia Group, admits that vendor management is one critical issue, where the track record of Indian developers and particularly those based out of Delhi-NCR, is less than desirable. According to him, this is the fallout of the phenomenal growth of the sector that made the developers over-leverage and over-commit. Today, they are in a hopeless situation and are left with no choice but to delay or default in payments.
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“Even in these challenging times, developers are getting credit of three to six months, but only with those suppliers who have been with us for quite some time and have got their payments on committed timelines. The problem arises, when you start defaulting on payments. Then, your old vendors will desert you and new ones will not supply, unless you offer advance payment,” says Hawelia.
How payment defaults to vendors affect home buyers
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Other developers claim that their timely payments, empowers them to evaluate the performance of the vendors. Sobha Ltd, for example, says that its purchase department evaluates the performance of vendors, on a quarterly basis. A vendor is evaluated on parameters, such as timely delivery of materials, consistency in quality, competitive rates, credit terms, dependability, coordination and product innovation.
“If the performance of a vendor is found to be below average, he will be informed about the same and given a chance to improve his performance in the next quarter. If the performance continues to be below average in the next quarter too, the vendor will be suspended. On a monthly basis, the need to locate new vendors is assessed, considering all cost reducing measures,” explains JC Sharma, VC and MD of Sobha Ltd.
Trail of defaults
- Vendors and suppliers to the Indian real estate market are suffering, not in terms of orders but in terms of billing.
- Developers blame fiscal constraints, slow sales and approval bottlenecks, for their inability to pay.
- Ancillary industries supplying to real estate, maintain that over-dependence on builder contracts that ensure bulk buying, going overboard on commitments and under-utilisation of the retail network, are the major reasons why they are trapped in a vicious cycle.
(The writer is CEO, Track2Realty)
Source: https://ecis2016.org/.
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Source: https://ecis2016.org
Category: Lifestyle
