Developers have started paying up, say contractors

Construction companies executing contracts for realty developers have a reason to smile as some developers have started paying sooner than they did a few months back.

When at the beginning of this year, infrastructure firms saw their working capital cycle expand from 90 days to 130-145 days, developers, with their shaky financial position, turned out to be their worst clients.

With property prices and demand plunging since the latter part of the last year and debts mounting, developers were forced to postpone their plans and delay payments to their contractors.
But now, as Sandeep Agarwal, general manager of finance at B L Kashyap & Sons, puts it, things have definitely improved over the last couple of months.

“The liquidity position of developers is a lot better than in January or February,” Agarwal said. He said that the payment cycle has come down by nearly 15 days since May. Nearly 35% of B L Kashyap’s Rs 2,100 crore order book is in realty.

Arun Sahai, CEO of Ahluwalia Contracts, said there has been a positive response from home buyers in the recent past because of the correction in prices.

“Prices have stopped dropping. Despite the improved response from home buyers, commercial and IT properties are still in surplus,” he said.

Sahai cited the recent affordable housing project launched by Emaar MGF, which, he said, received a very positive response from the market. “There are not many low-cost housing projects now, but in the next six months we will see a lot and we will bid for contracting jobs in them,” Sahai said.

Ahluwalia on May 7 got the Rs 95 crore that Emaar MGF had owed it for a while after the Delhi Development Authority stepped in to bail out the developer. Emaar MGF is developing a village for the Commonwealth Games where Ahluwalia is a contractor. Yogen Lal, chief operating officer of Unity Infraprojects, which is working with Indiabulls Real Estate and Phoenix Mills, said, “We did not face any major payment difficulties to begin with and things have not worsened.”

K Jalandhar Reddy, executive director, KNR Constructions, had earlier said that with things slowly improving, his company would look at bidding for contracting jobs in viable realty projects. “In the last 6 months, we avoided getting into the space, but now we will look at it, although selectively,” he said.