Why Japan's top property developers are betting on India
What's the story
Japan's leading property developers, including Mitsui Fudosan and Sumitomo Realty, are intensifying their investment efforts in India's real estate sector. The move comes as a response to the country's booming economy, rising office rents, and relatively low construction costs. Mitsui Fudosan entered India in 2020 through a partnership with local developer RMZ Real Estate to develop an office complex in Bengaluru.
Investment strategy
Mitsui Fudosan plans significant investment in Indian real estate
Mitsui Fudosan is considering a fresh investment of 30-35 billion yen ($190-$225 million) or more in projects with RMZ or other developers. The company's management team recently visited Mumbai and the New Delhi area to explore new opportunities. RMZ Real Estate CEO Avnish Singh confirmed that Japanese developers are now accelerating their investments as trust with local partners has been established.
Growth engine
Sumitomo Realty's significant investments in Mumbai
Sumitomo Realty, Japan's third-largest developer, has invested $6.5 billion across five projects in Mumbai. The company is also looking for land near the Navi Mumbai airport for new investments. This shows the growing interest of Japanese developers in India's real estate market despite its challenges such as construction delays and bureaucratic hurdles in land acquisition.
Risk appetite
Japanese developers willing to take development risk
Unlike most foreign players who prefer buying existing assets due to India's construction delays, Japanese investors are willing to take development risks. Seiji Ota, a partner at Deloitte India who specializes in Japanese investments, said the expected returns in India are much higher than those in the Japanese market. This makes India an attractive destination for Japanese developers looking for profitable investment opportunities.
Market dynamics
Low labor costs and rising office rents attract developers
One of the main attractions for Japanese developers is India's low labor costs. For instance, hiring an electrician or plumber costs just $2/hour in India. Additionally, premium office space rents have skyrocketed in India due to an average economic growth of 8% over the last three fiscal years. Mumbai's Bandra Kurla Complex led commercial rent growth in Asia Pacific with a whopping 14.2% increase in Q3.
Innovation
Japanese firms bring new technology to Indian market
Japanese firms' preference for designing buildings from scratch allows them to introduce technology not yet used in India. Sumitomo Realty's first project in BKC uses a steel structure that enables wide floor plates and pillar-less offices, something Indian developers can't do yet. The firm expects to charge a 30-40% premium over normal rents in the area for this design feature, highlighting their innovative approach toward real estate development in India.