Bottom Line: It is not just poor consumer connect that affects the credibility of Indian real estate, even the vendor management is so poor that suppliers donâ€™t trust the builders.
â€śThe day I joined this real estate company I was exposed to an altogether new reality of vendor management,â€ť admits the marketing head of a Noida-based real estate company. She had earlier worked in hospitality industry where she never felt the need to not face the vendors due to payment delays and defaults.
â€śHere I had to literally look for excuses to not come across the vendors, including even the media companies, for endless delays in payments. I never realised before joining the real estate sector as to making payment against your order is such a big issue. Most of the reputed vendors either refuse to work with the sector or else ask for upfront advance payment,â€ť she says.
Today, there is so much of distrust on part of the vendors that the suppliers of housing equipments, like the bathroom fittings are ready to offer big time discount due to lesser demand in the market but are not ready to give credit. They have had a tough time in recovering their dues from the builders. The same is the reality with all the vendors & suppliers, right from the tiles maker to the cement manufacturers.
Missing vendor management
Parryware has witnessed sales coming down due to payment issues
Vendors & suppliers of Indian real estate suffering, not in terms of orders, but in billing cycle
Privately developers call it market default which is a result of fiscal constrains to slow sales and approval bottlenecks
Ancillary industries supplying to real estate maintain over-dependence on builder contracts that ensure bulk buying, going overboard on commitments and under-utilisation of retail network are the major reasons why they are trapped in a vicious circle today
The developers do admit that there has been some bad precedents set by the over-leveraged companies. As a result, the industry has got such a bad name that those service providers and suppliers who have business in other sectors have refused to do business with the real estate companies.
However, there are certain ancillary industries that cannot do away with the Indian housing market. Their dependence on the real estate is making them suffer, not in terms of orders but in billing cycle.
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 retail network are the major reasons why they are trapped in a vicious circle today.
The developers privately share their own reasons, ranging from fiscal challenges to slow sales and approval bottlenecks, but most of the defaulting companies are not ready to speak on record. And those who have a good track record are few and far between.
Nikhil Hawelia, Managing Director of Hawelia Group admits that this is one critical issue where the track record of Indian developers in general and developers based out of Delhi-NCR in particular is less than desirable. According to him, this is the fallout of phenomenal growth of the sector that made the developers over-leverage & over-commit. Today, they are in a hopeless situation and are left with no choice but to either delay or default in payments.
â€śEven in these challenging times we as developers are getting the 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 is when you start defaulting on the payment. Then what happens is that your tried & tested vendors desert you and the new ones will not supply unless you offer advance payment,â€ť says Hawelia.
There are other developers with sound fiscal management who claim that their timely payments rather empowers them to take the final call. These are the developers to whom it is not the vendors who would evaluate, rather the developers are evaluating the performance of the vendors.
Sobha Ltd. Claims that the performance of vendors is evaluated on a quarterly basis by the Purchase Department. A vendor is evaluated on the defined parameters of timely delivery of material, consistency in quality, competitive rates, credit terms, dependability, coordination and product innovation.
â€śIf 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 of the vendor continues to be below average in the next quarter too, the vendor will be suspended. On monthly basis, the need to locate new vendors is assessed considering all cost reducing measures,â€ť says JC Sharma, VC & MD of Sobha Ltd.
However, not all the developers can claim this in todayâ€™s market where they have reasons to avoid meeting up with the vendors. Payment defaults are not unusual in the real estate market even in the global context but in India the aggressive developers have left behind a vast poo of dissatisfied vendors and contractors. The problem is from where to procure the raw material now. This has a symbiotic relation with the project timelines as well.
With a trail of unpaid bills, the India real estate has opened doors to market perceptions where right from the bathroom fitting manufacturers to the wooden door frame makers are testimonials of poor vendor management of the Indian real estate developers.
By: Ravi Sinha