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Credai plans to buy building material in bulk in order to cut costs

Posted on Apr 03, 2015

HYDERABAD: The Confederation of Real Estate Developers' Associations of India (Credai) is looking at bulk buying to procure most of the building materials directly from manufacturers in a move aimed at cutting costs for its members numbering more than 11,000 across the country.

"We are preparing to experiment with the bulk buying model shortly to bargain efficiently with the manufacturers to improve margins in the subdued residential realty market," said C Shekar Reddy, former president of Credai, the apex body of private builders in India.

The builders consume thousands of tonnes of cement, steel, ready mix, cables, electrical fittings, elevators and paints, among other materials, every year. Credai's move comes at a time when property developers are saddled with over $100 billion (about Rs 6.2 lakh crore) worth of unsold residential stock piled up over the last few years. A Knight Frank report said the sale of residential units fell to 2.34 lakh units in 2014, a drop of 17 per cent compared to the previous year, while new launche ..

Reddy said Credai had experimented successfully with the bulk buying model on a pilot basis earlier by procuring large quantities of cement from the Cement Corporation of India. "We could not continue with the bulk buying model as the industry body did not have numbers those days. Today we are fairly a large community and can consider displaying our bargaining power with the manufacturers to gain significantly over traditional buying models," he said.

Credai has identified several large domestic and global manufacturers of various building materials and has initiated talks with them, seeking significant cost benefits through purchase of large volumes for longer tenures, Reddy said. "We may even come out with global tenders, if needed, to evoke competition among the manufacturers of building materials to elicit competitive prices. We will consider importing from the global markets wherever it works out cheaper," he said.

While cement accounts for 18 per cent of construction costs, it is followed by bricks at 17 per cent, timber 13 per cent, steel 10 per cent, sand 7 per cent and others 8 per cent, with labour costs accounting for 27 per cent, according to the Building Materials and Technology Promotion Council of the ministry of urban affairs and employment.

Terming the bulk buying model a clever move by Credai in the backdrop of rising costs of inputs like cement, steel and sand over the past few years, global property consultant Jones Lang Lasalle (JLL)'s India chairman Anuj Puri said, "With cost of land, cost of finance and cost of approvals also rising, it was essential for the real estate industry to find ways to control and manage costs as sales of residential properties are stagnant." Significant cost savings through bulk buying should al ..

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