What drives Vietnam real estate companies to explore opportunities in foreign markets?

Alongside the international investment trend into the Vietnamese market, domestic real estate companies have begun to seek investment opportunities in overseas real estate markets.

Commenting on the benefits that have recently motivated domestic companies to begin their investment journey overseas, Hoang Nguyet Minh, associate director of Savills Hanoi, said in addition to comparably stable profit margins, there exist factors that drive more demand from domestic firms, such as quick project execution time, high project quality, low interest rates, market stability etc.

The most obvious benefits of offshore investment include assisting domestic real estate businesses to diversify their portfolios, increasing cooperation opportunities with a broader business network, and seeking new investment potential.

Hoang Nguyet Minh, associate director of Savills Hanoi. Photo: Savills Vietnam

“Offshore investment may not achieve as high ROI [Return on Investment] as in Vietnam, but in many markets, especially developed countries, investors can be assured of more stable returns. Several overseas investments by Vietnamese groups have demonstrated some success, with stable returns, improved knowledge of international standards in portfolio management, creating trust from international investment partners and most importantly promoting Vietnam on the investment world map,” Minh added.
 
From a macro perspective, Neil MacGregor, managing director of Savills Vietnam, said: “Whilst foreign investors have been actively pursuing investments in Vietnam itself for many years, some of these same investors are now seeking Vietnamese partners in their projects elsewhere. Although still not significant in number we are seeing approaches from a more diversified range of projects, ranging from hotels, offices and residential, to education and healthcare.”
 
However, offshore investment still carries a lot of risks, the majority of which originate due to differences and discrepancies in cultural norms and legal systems. It is important that investors seek local professional advice from real estate experts, lawyers and tax advisors. Investors should be clear on their investment strategy, target returns, investment horizon and understand potential future exit options. Often, more sophisticated developed markets are much more competitive and unless investors are well-prepared, they will be at a significant disadvantage.

Neil MacGregor, managing director of Savills Vietnam. Photo: Savills Vietnam

To achieve the successful investment in foreign markets, Minh suggested 3 tips for domestic real estate developers.

Firstly, conduct market research. Depending on the market, research should cover the trading practices of that particular market, consumer demand, market trends, future supply and how directly and indirectly competing projects affect the project. Market research must consider any delays in completing a transaction and obtaining an investment license for a new project in the host country.

If investing in a residential project, when to begin selling is the most important factor, as project delays can expose the investor to significant cyclical risks. However, for commercial projects, controlling long-term cash flow from 7-10 years makes it easier for investors to choose a reasonable time to divest, increase investment returns and minimize risks.

Secondly, know the rules before deciding to invest. It is important to understand the process and methods of investing in the host country. Always seek advice from lawyers in the country of investment to ensure that there are no unnecessary legal risks. A clear understanding of legal requirements is imperative for all investors for any projects.

Thirdly, carefully consider the capital structure for the project, as low interest rates in many developed markets can significantly improve the investor’s return on equity if debt is utilized appropriately.