Japan’s Sumitomo Realty has staked India on Mumbai and serviced apartments

Japan’s Sumitomo Realty & Development, the country’s third-largest developer, plans to expand into India with an unusual strategy: focusing on Mumbai and managing apartments rather than selling them, officials told Reuters.

Japanese developers are expanding their presence in India’s $300 billion real estate market, attracted by much lower rents and construction costs than in Tokyo, New York or London.

Players such as Japan’s Mitsui Fudosan as well as US-based Blackstone have expanded across India by partnering with local developers or buying completed buildings in view of slow land acquisition processes. Sumitomo, however, is focusing on Mumbai and opting for ground-up construction.

“Just like Tokyo, Mumbai has assets and vitality worth focusing on,” Ninomi Masato, general manager of Sumitomo’s India business division, said in an interview.

Sumitomo has previously called Mumbai its “second growth engine” after Tokyo, where it operates 240 buildings. Mumbai has fewer geohazards, such as earthquakes, which threaten assets and cash flows, Massato added.

Major bet on Mumbai

Tomoki Iwata, managing director of Goisu Realty, Sumitomo’s Indian unit, said the company is reviewing other cities but has yet to find a suitable site in Delhi, Bengaluru or Chennai.

Sumitomo sees a stronger supply of prime locations in those cities compared to Mumbai, where land scarcity creates scope for long-term rental growth.

Sumitomo is developing five projects in India – all in Mumbai, including four in the Bandra Kurla complex near the international airport, which is home to several global companies.

Iwata said those four projects will be completed within five years, with cash flow funding future expansions. He said Sumitomo had spent a quarter of its committed $6.5 billion investment in India but declined to give details.

Servicing, not selling

Sales of luxury homes in India have increased as wealth has increased and premium apartment rents have also increased. Average rents in south Mumbai this year were as high as 730,000 rupees ($8,096) per month, up nearly 20% from three years ago, according to real estate company Cushman & Wakefield.

Local developers such as Oberoi Realty and Godrej Properties typically sell luxury homes for millions of dollars.

“We are not of the opinion that we should just follow it,” Masto said, adding that Sumitomo will manage and rent out apartments at one of its “super-high-rise” Mumbai projects rather than sell them.