Vietnamese M&A property activities - "Clear" land shortage.
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In 2017, a vibrant real estate market will elevate the number of merger and acquisition to a new record. The Vietnamese real estate market continues showing irresistible appeal to foreign investors, mostly through merger and acquisition. Joint ventures have become popular among foreign developers who have strong financial capacity and track record joining forces with local developers who own land and have strong connection with the local community. JLL observe there are hundreds of million dollars waiting to be poured into the market in most segments including residential, office, retail, hospitality and industrial. Investors are from many different countries such as Japan, Korea, Singapore, with an increasing number of groups from mainland China including CFLD, Country Garden, Jiayuan, etc.
Japanese investors are interested in increasing their presence in Vietnam. Last September, Kajima, one of the four biggest contractors in Japan, set up a joint venture with Indochina Capital to invest USD1 billion in 10 years. The primary focus must be on residential and hospitality projects in Hanoi, Ho Chi Minh City and Danang. Expect Japanese investors will be one of the most active groups in the market this year. Their main focus is residential and operating asset such as serviced apartments and Grade A office.
Since beginning of this year, there are several notable transactions in the industry. In March, Singaporean company Keppel Land acquired the remaining stake (16%) of Southern Waterborne Transport Corporation (Sowatco) in Saigon Centre through subsidiary Krystal Investment Pte., Ltd. Hongkong Land will become a potential strategic partner with Ho Chi Minh City Infrastructure JSC (CII) in developing residential housing in Thu Thiem New Urban Area. In May 2017, Quoc Cuong Gia Lai sold its project in Ho Chi Minh City’s Nha Be District to Sunny Island Investment for an undisclosed transaction value. Recently, Phat Dat Corporation announced that it has transferred a part of Everrich 3 project in Ho Chi Minh City. Hung Thinh Real Estate has its own strategy to purchase 20 long-delayed projects. Ten of them have been on progress of construction and started selling.
Challenge in real estate investment in Vietnam
The Vietnamese real estate market is tightly held and open market offerings in this high-growth, high-potential sector are rare. The accessibility to the good assets is quite limited; most foreign investors are working with investment consultancy to enter this market.
"In past period of time, many M&A deals were agreed upon by partners, but they finally failed due to legal consideration and decision. The main reason is that land law still has many inconsistencies, so the M & A deals in real estate have many barriers, "- Lawyer, Võ Hà Duyên, from Vilaf Hồng Đức stated
There is currently strong interest in Vietnam real estate from foreigner investors, and expect this theme to continue for the foreseeable future. There will continue to be a strong preference for income producing assets, however given the shortage of this type, there will be a continued focus on development activity.
When looking at the market as a whole expect continued growth through most asset types. Hospitality has been interesting over the past year with new funds with foreign capital now specifically targeting this sector. Expect that this trend will continue in hospitality, and in other growing sectors such as Industrial and alternatives like education. The affordable housing market is another key growing sector, now drawing specialist capital sources who identify value in these underlying fundamentals including growing middle class.
There are more foreign investors entering Vietnam, and opening new offices here. Typically, these investors were on a fly-in fly-out basis on their first investment, while now for subsequent investments they have set up local teams comprising a combination of local and expat operators. Due to the strong focus on Vietnam from regional investors, expect M&A activities to reach record levels in 2017 and 2018.
Vietnam has become an attractive destination for many foreign investors largely due to the country’s friendly policies encouraging FDI, its political stability and strong economy. The level of FDI has continued to grow year-on- year due to these strong fundamentals with newly registered FDI to USD 19.2 billion in first half of the year, representing a rise of 54.8% . Vietnam remains one of the most favourable destinations for foreign investment in South East Asia. Whilst FDI in real estate is set to increase over the coming years.
