Tuesday, 21 May 2019

Fine-tuning bottlenecks to lure more M&A in Vietnam's real estate

Updated at Saturday, 18 Aug 2018, 08:15
The Hanoitimes - Vietnam’s merger and acquisition (M&A) has been attractive to foreign investors in recent years, but there remain obstacles hindering the M&A market to further grow, experts said.
After exceeding the US$10-billion landmark for the first time last year, Vietnam’s M&A market continued to rise 55 percent year-on-year to reach US$3.55 billion in the first six months this year.
However, experts suggested that M&A should be further promoted as its value is forecast to be lower than last year at US$6.5-6.9 billion in 2018.
A typical M&A deal in Vietnam often lasts for a whole year or even 2-3 years
A typical M&A deal in Vietnam often lasts for a whole year or even 2-3 years
Experts said that investors often decide to pursue M&A rather than develop its own land reserves for new project construction to save time in completing legal procedures and dealing with issues related to site clearance and compensation.
However, Nguyen Khanh, director of real estate services firm Jones Lang LaSalle (JLL)’s Capital Markets of Vietnam, said that a typical M&A deal often takes just 3-6 months to complete in other countries, but in Vietnam the process is delayed and lasts for a whole year, even 2-3 years.
According to Khanh, the tax system and the uncompleted legal system make the negotiation process lengthy and push up transaction costs. In many cases, the transaction fails because the parties cannot come to an agreement in the end after spending quite a bit of time and resources.
Besides, Khanh said, it is difficult to find the suitable source of property supply. Finding a product that can meet the high demand of large investors is not easy, especially in a developing market with low transparency ratio and lack of information like Vietnam.
In addition, there is supply and demand imbalance, Khanh said, noting that this is also one of the main factors influencing the success of M&A deals. That demand exceeds supply, as well as the scarcity of up to standards projects in the highly-demanded real estate areas such as the East and South of Ho Chi Minh City, also cause the price to increase rapidly.
“This makes it difficult for investors to cope not only with local partners with high prices expectation, but also to compete with other investors with the occurrence of additional capital sources that pushes up prices,” Khanh said.
Troublesome legislation
According to experts, legislative obstacles have also proved troublesome to M&A deals as developers are only permitted to sell projects after securing land use rights certificates for all or part of the projects.
According to Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, as the acquisition of a project is between investors and not between project owners and homebuyers, if the vendor has finished construction and investment procedures then the buyer can continue to complete these tasks.
He therefore suggested that property developers be authorized to sell all or part of a project, since they have completed site clearance and created “clean” land reserves for the project.
At the same time, the sale of all or a part of a project should be considered a normal activity within the real estate business and an investment in accordance with enterprises’ needs, he added.
JLL’s Khanh suggested that to achieve the success of a M&A transaction, before entering the negotiation process, building of trust is very important.
“Investors place trust on the available preliminary information and commitment of the seller, while the seller relies on the investor’s capability profile, financial background and expertise,” Khanh said.
In most transactions, competent investment advisors with comprehensive knowledge about the domestic market play an important role in helping the parties to reach agreement and comply fully with the requirements, Khanh said.
Minh Tam
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