What is outlook for real estate M&A in Vietnam in 2022?
Foreign investment inflows into real estate have accounted for one-third of Vietnam’s total FDI so far this year.
Real estate mergers and acquisitions (M&A) in Vietnam are likely to increase in 2022 in terms of frequency and value, being a major source of foreign direct investment (FDI).
|Homebuyers in Hanoi seek information on real estate projects. Photo: Cong Hung/ The Hanoi Times
The M&A outlook for 2022 is bright as Vietnam is an increasingly attractive destination for international businesses, Savills Vietnam stated, attributing ease of travel to the prospect.
In reality, foreign investors can now travel to properties and conduct market research, understand business models, or evaluate the potential of sites following Vietnam’s reopening of borders on March 15.
In addition, travelers from 13 countries are now allowed to enter Vietnam without a visa, the London Stock Exchange-listed global real estate services provider said, adding that real estate attracted a large volume of FDI last year, at US$31 billion.
FDI pull factors
Savills highlighted the role of FDI in real estate and the economy as a whole, pointing out two major “pull” factors making Vietnam an attractive investment destination. Firstly, it offers investors favorable macro conditions namely steady economic growth, political stability, improved infrastructure links, increasing urbanization, and a large and young workforce. Secondly, the government provides attractive support policies, such as tax incentives, to foreign investors.
On a macro level, Vietnam is one of the fastest-growing economies in Asia-Pacific. According to FocusEconomics, the country will be listed as the fastest growing economy in the region in 2022, and this momentum is expected to continue into 2023.
The country’s infrastructure and transport networks provide links regionally not only through a growing road system but also through international seaports, airports, and land borders. According to the Ministry of Planning and Investment, there are plans to launch the largest socio-economic development recovery plan the country has ever seen, with over VND100 trillion ($4.34 billion) dedicated to infrastructure development. This will increase the potential satellite provinces have to attract FDI enterprises. As a result, improved transport links will allow these enterprises to expand further afield than established hubs like Hanoi and Ho Chi Minh City.
Demographics also play an important role in attracting FDI businesses. In terms of manpower, Vietnam has a large and young workforce coupled with competitive labor costs. With an increasingly urban population, there is also great potential for the development of new urban area projects.
The government plays an essential role in attracting FDI enterprises largely thanks to its supporting policies. During the pandemic, it both curbed the impact of the pandemic and offered support such as facilitating the circulation of goods, debt restructuring, and tax extensions and exemptions.
Another reason contributing to the recovery plan is the successful national vaccination campaign. In fact, Vietnam’s high vaccination rate (among a few countries with the highest rate so far) plays a huge part in investor confidence, making the country a safe destination for visitors.
Le Thi Phuong Lan, Head of Investment, Savills Hanoi, shared: “In 2022 so far, we have seen encouraging M&A activities. Of the industries receiving investment, real estate ranked second and received nearly US$1.52 billion, for 30.4%, of total registered FDI. These investments demonstrate that foreign investors remain bullish on developing real estate projects in Vietnam.”
While Vietnam has enormous investment potential, investors should be aware of some of the limitations within the market, which include legal barriers, difficulties with joint venture partners, uncertainty with the M&A process, and different pricing approaches.
Vietnam has relatively complicated land laws. There are a plethora of inconsistencies between laws, which takes time and money. Despite institutional reforms over the last few years, these shortcomings hinder M&A deals.
When doing business in Vietnam, most foreign enterprises enter joint ventures. Within this model, the foreign enterprise holds the main decision-making power and the Vietnamese investors provide legal support. However, due to the differences in business practices and legal structures, negotiations may be time-consuming.
As M&A is a relatively new concept in Vietnam, many businesses, especially small and medium enterprises, are not prepared for the processes involved. Large projects without specific divergence plans may struggle to attract investment or to transfer the project.
Finally, buyers and sellers often have different pricing approaches. There is often a difference between the price a developer expects and what the buyer is willing to pay, which could lead to challenging negotiations to find an agreed price.
Lan said although M&A deals are increasingly popular, there are still potential obstacles for foreign investors. As M&A transactions are a complex commodity, the involved parties need to carefully research and develop detailed plans to ensure long-term value.
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