M&A in real estate: the context has changed

Positive acquisition of projects by foreign entities

The Binh Duong province People's Committee has authorized the transfer of the Tan Thanh Binh Duong residential complex project to Becamex IDC. Sycamore Limited Liability Company, a subsidiary of CapitaLand, will get the whole project. The project's goal is to construct residential zones to suit the population's housing demands.

This is yet another important transaction involving foreign businesses. The expected total amount of real estate investment and M&A deals in the first nine months of 2023 totaled 729 million USD, according to RCA and Cushman & Wakefield.

Foreign investors continue to dominate transaction activity, acquisitions, and real estate investments, while local businesses account for less than 10% of transaction volume.

This is an unavoidable tendency amid difficult market conditions, according to Mr. Phan Xuan Can, Chairman of Sohovietnam. He argues that amid good market circumstances, Vietnamese enterprises are less inclined to outsource projects to foreign entities since they can easily acquire bank financing or raise funds on the stock and corporate bond markets. Investors that have capital tend to build ventures, sell them to clients, recoup cash, and settle loans.

Furthermore, when projects are sold, real estate transactions are mostly between local enterprises, with fewer examples involving overseas investors. Domestic investors benefit from easier project transfer processes.

"In recent years, many successful domestic investors have expanded their businesses by acquiring new projects and even being willing to purchase projects with incomplete procedures." "Due to their aggressiveness, domestic investors have become truly dominant in the transfer market," said Mr. Phan Xuan Can.

However, foreign corporations presently have a significant advantage in the real estate M&A race. Many domestic enterprises will be cash-strapped as a result of issues in bank loans, bonds, and capital flow in the stock market beginning in the second quarter of 2022. The market has also entered a slump, and debt repayment pressures have prompted local corporations to sell assets, with foreign companies buying.

According to Mr. Can, it is a good time for foreign investors to buy projects since many domestic companies are eager to sell assets to pay off debts. Foreign investors may readily select high-quality projects and engage with domestic firms. Prices for project transfers are also significantly lower than previously.

In his role as a seasoned leader of a foreign firm in the market, Angus Liew, Chairman of the Board of Directors of Gamuda Land Vietnam, also comments that M&A was difficult for foreign investors in the 2020-2021 timeframe. However, Gamuda has had a prosperous year in 2023, with the execution of three acquisitions.

Continuation of major deals

Cushman & Wakefield believes that a considerable quantity of cash from international investors will flow into the Vietnamese real estate market in the 2024-2026 timeframe, since several transactions are presently under negotiation and are extremely optimistic. The search for clean, high-quality land funds with actual worth, legal ownership rights, complete compensation and clearing, and development potential remains a priority.

Warrick Cleine, Chairman and CEO of KPMG in Vietnam and Cambodia, also provided an evaluation, believing that global firms are shifting away from reliance on China. Investors are optimistic about the Vietnamese market.

As a result, Vietnam is a very appealing location. However, the chances of international money moving into Vietnam via the M&A channel in the near future are partly dependent on the dynamics of interest rate rises by the US Federal Reserve. Investors are keeping a close eye on the Fed's moves.

Nonetheless, Warrick Cleine believes that M&A will continue to grow and play an important role in the Vietnamese economy. "As Vietnam and the United States elevate their relationship to a Comprehensive Strategic Partnership, US investors are shifting to Vietnam, which will boost the increase in M&A," he said.

Meanwhile, according to Neil MacGregor, CEO of Savills Vietnam, despite challenges, the real estate market is resilient and poised to capitalize on beneficial policy and economic improvements. The next two years will be exciting for Vietnam's M&A industry.

Real estate transactions in the region have dramatically dropped, leaving a considerable pool of accessible investment cash. Despite high interest rates, Vietnam's development potential and relatively high returns remain attractive to international investors.