Vietnam has rapidly become one of ASEAN’s most attractive host countries for Foreign Direct Investment (FDI), but the era of measuring success by volume of investment alone is coming to an end. The real challenge for the country is improving the quality of foreign direct investment to foster sustainable, long-term growth. The goal of attracting […]
Real estate M&A deals are getting increasingly popular in Vietnam, yet there is still more work to be done from the Government and Vietnamese businesses for the M&A market to reach its full potential in 2022.
Post-COVID real estate M&A boom
The Vietnamese M&A market has grown in lockstep with the economy's rapid expansion over the last decade with real estate being the second-largest beneficiary of foreign direct investment in Vietnam, trailing only the manufacturing and processing industry. The real estate M&A is resuming as the economy picks up, with total transaction values exceeding every first quarter over the past five years. In 2021, despite COVID-19 related risks, real estate businesses received more than $31 billion of registered foreign direct investment (FDI). Millions of dollars have been invested in Vietnam by real estate developers from Singapore, South Korea, and Hong Kong.
According to analysts, the M&A race will continue to heat up since it is one of the fastest and most potent strategies for enterprises to delve deeper into their value chains, grow market share, develop their goods, and continue to enter the market, bringing shared values to the community. The most essential reason for businesses to pick M&A is that many enterprises with enormous potential want to decrease the time it takes to reach the market with each unique project in the context of increasingly restricted land funds.
Contrary to some experts' predictions of a real estate "bubble," the real estate M&A market in 2021 is still active with a series of huge deals, and real estate businesses continue to acquire more substantial land funds.
Following the favourable momentum of 2021, the real estate M&A market remained active in the first quarter of 2022. The total amount of M&A transactions in the first quarter exceeded the total value of each year from 2019 to 2021. Real estate M&A activities in Vietnam are projected to expand in terms of both quality and quantity in 2022 with Hanoi and Ho Chi Minh City as the two investment hotspots.
The market witnessed a number of notable deals in Ho Chi Minh City last quarter, including the collaboration between Novaland and Tai Nguyen JSC to revive the Grand Sentosa project (previously known as Kenton Node) in Nha Be. Similarly, Saigon One Tower in District 1 has been renamed IFC One Tower and will be managed by VivaLand Investment and Development JSC. Phu Long Real Estate JSC will develop the Swan Bay project in Dong Nai, which will cover approximately 200 hectares. However, it was Hanoi that registered the majority (58%) of total transaction volume in the country with the US$550-million transfer deal of Grade-A office building Capital Place in Ba Dinh District from CapitaLand Development to Viva Land.
Reports from Cushman & Wakefield show that investors' appetite remained mostly focused on conventional asset classes from 2017 to Q1/2022, including the housing market, development land, industrial, office, and hotel markets. Ho Chi Minh City accounts for 76 percent of housing transactions, while Bac Ninh, Dong Nai, and Binh Duong account for more than 50 percent of industrial real estate investment, and Hanoi accounts for 65 percent of hotel sales. Healthy demands from both local and international investors in the office segment along with industrial services, hotels, and retail will strengthen confidence in the market for the rest of the year.
Trang Bui, General Manager of Cushman & Wakefield Vietnam, stated that total stock in Ho Chi Minh City and Hanoi combined is just around half of Bangkok's total, with a dearth of availability in Grade A products sought after by FDI businesses. As a result, following a prolonged period of lockdown and the work-from-home wave, Vietnam's office sector re-emerges at the top.
Key drivers for M&A in 2022
To begin, the country provides investors with favourable macroeconomic variables such as consistent economic development, political stability, improved infrastructural linkages, growing urbanization, and a sizable and young workforce.
Vietnam's sophisticated infrastructure and transportation networks for regional and international purposes are backed by an expanding road network and a number of international seaports, airports, and land borders. Over VND 100 trillion would be committed to infrastructure development under the Ministry of Planning and Investment's recently announced socio-economic development recovery plan. This would result in the significant development of satellite provinces and encourage FDI enterprises to expand outside existing hubs such as Ha Noi and Ho Chi Minh City.
Secondly, the Vietnamese government has provided substantial assistance to foreign investors to establish mutual trust and a sense of security to continue carrying out investment, production and business activities in accordance with the law. A significant shift in policies was made to control the openness of the real estate market, ensuring the handling of violations in the capital market of real estate businesses and tightening of real estate management regulations. According to Cushman & Wakefield, the Government has agreed to revise the Housing and Real Estate Business Law, which would be presented to the National Assembly during its Plenary Session in October 2022. Simultaneously, there is a proposal to submit the Land Law (revised) to the National Assembly for opinions and approval in order to create a legal basis for the business of land use rights. Furthermore, by signing Decision No. 508/QD-TTg dated April 23, 2022 approving the strategy for taxation system reform through 2030, the Government aimed at promoting the effective use of houses and land, contributing to limiting speculation on houses and land and ensuring a reasonable and stable source of revenue for the state budget that is suitable to Vietnam's socio-economic conditions and international practices.
Barriers
Despite the aforementioned “pull” factors, foreign investors should also be aware of various limitations in the real estate M&A market, such as legal barriers, lack of transparency, uncertainty with M&A procedures, and limited land funds.
In Vietnam, the legal system on land is still somewhat intricate, resulting in bottlenecks and waste that have yet to be addressed. Many provisions of laws, such as the Housing Law, the Land Law, and the Real Estate Business Law, are still inconsistent. Despite the government's institutional reforms throughout the years, these shortcomings have and will continue to impede the development of many M&A deals.
Lack of transparency and standards in transactions also pose great challenges to foreign investors. Because the real estate brokerage profession is inextricably tied to market transparency, it has come to the notice of the Government and related agencies that tougher regulations should be established to tighten control over real estate brokers. According to the Vietnam Association of Realtors (VARS), just 10% to 12% of Vietnam's roughly 300,000 real estate agents are qualified to perform the occupation, despite the fact that the number of professionals in this area is increasing. While the quantity of brokers is continuously expanding, the quality has been neglected. Although regulations on real estate agents and practice standards were once established by the Ministry of Construction, quality control of the brokers has been lacking for a long time.
Most notably, foreign businesses are discouraged from investing in Vietnam real estate M&A because the market is still being dominated by domestic enterprises. After two years of struggling with the Covid-19 pandemic, land funds are becoming increasingly scarce due to acquisitions for development by domestic real estate enterprises and land prices for development have increased sharply across the country, erecting massive impediments to foreign investment in the Vietnamese market.
Conclusion
Despite existing barriers that can hinder the efforts of foreign investors, Vietnam real estate M&A is predicted to be more active than ever in 2022, with limited land funds and government legislative backing. As M&A transactions are a complicated commodity, the parties involved must conduct extensive research and make specific strategies to assure long-term value. With an experience of more than 10 years in consulting, Viettonkin is one of the leading firms in the industry. In order to not miss out on the golden time for real estate M&A, do not hesitate to contact Viettonkin for amazing insights and guidance on this expanding market. Learn more about us and how we can help you minimize investment risk in the Vietnamese market here.
