MUMBAI: Japanese real estate developers continue to explore the complex Indian market, with many expected to enter, lured by rising rental rates in a rapidly expanding economy and low construction costs.
A prime example is Mitsui Fudosan, Japan’s largest property developer, which ventured into India in 2020 through a partnership with local developer RMZ Real Estate to construct an office complex in Bengaluru.
According to two sources familiar with the matter, the company may invest an additional 30-35 billion yen (approximately $190-$225 million) in projects with RMZ or other local developers. Last month, Mitsui Fudosan’s management team visited Mumbai and areas around New Delhi in search of opportunities.
Mitsui Fudosan and RMZ both declined to comment on the potential investments.
However, RMZ Real Estate CEO Avnish Singh noted that Japanese developers are becoming more active now that trust has been established with local partners. “The floodgates can open and have opened,” he remarked.
Meanwhile, Sumitomo Realty and Development, Japan’s third-largest developer, views Mumbai as its second most important growth market after Tokyo. The firm has committed $6.5 billion to five projects in the city, including two added this year. They are also looking for land near the upcoming Navi Mumbai city airport for further investments, said an industry source who chose to remain anonymous.
While Sumitomo Realty did not respond to a request for comment, the interest of Japanese firms is palpable.
Sleeves Rolled Up
Japanese investors are not alone in their interest in Indian real estate; U.S. investment firm Blackstone, the largest commercial landlord in India, owns around half of its $50 billion in Indian assets in real estate.
Similar to Blackstone, most foreign investors focus on acquiring existing assets due to India’s challenging reputation for construction delays that can leave tenants and buyers stranded. Although recent reforms have improved timelines and established better dispute resolution frameworks, land acquisition remains slow due to bureaucratic hurdles.
“Japanese investors are among the few willing to accept development risk. They prefer to be hands-on,” Singh explained.
Even with challenges posed by bureaucracy, the potential returns can be significant. “Expected returns in Japan are around 2-4%. In India, you can easily anticipate 6-7%,” noted Seiji Ota, a partner at Deloitte India focused on Japanese investments.
Ota and Singh indicated that several other Japanese developers are keen to explore opportunities in India for office, retail, and hotel projects.
According to a September survey by Sumitomo Mitsui Trust Research Institute, Japanese companies have increased overseas real estate investments by 20% this year. Interest in India has notably increased, with 41% of respondents indicating an intention to invest—up 6 percentage points from a year prior.
Low Costs and Rising Rents
One major appeal for Japanese developers is India’s low labor costs. For instance, hiring an electrician or plumber can cost just $2 an hour.
Building premium office structures of up to 20 floors costs over $8,000 per square meter in New York, approximately $5,300 in London, and around $4,000 in Tokyo, while in Mumbai it is just $656, according to real estate consultancy Turner & Townsend.
Furthermore, rents for high-end office space have surged in India, supported by an average economic growth rate of 8% over the past three fiscal years.
In the third quarter, the Bandra Kurla Complex in Mumbai, the city’s central business district, witnessed commercial rent growth of 14.2%, the highest in the Asia Pacific region, as reported by CBRE.
This was followed by a 10.2% increase in Tokyo’s central five wards, and both India’s national capital region and Seoul’s central business district saw increases exceeding 9%.
Japanese firms’ inclination to design buildings from the ground up enables them to introduce technology that is not yet available in India. For example, Sumitomo Realty’s first project in the Bandra Kurla Complex features a steel structure allowing for wide, pillar-less office spaces—something current Indian developers have yet to implement.
As a result, the company anticipates charging a premium of 30%-40% over standard rents in the area for this innovative design feature. JPMorgan is set to be a tenant in the building, according to multiple sources.
Other Japanese developers making strides in India include Daibiru Corp, which began with office investments in two cities last year. They are now seeking new land and may also consider developing residential buildings and data centers, as per Anand Jayaraman, South Asia CEO of parent company Mitsui O.S.K. Lines.
