Real estate sector grows ripe for mergers, acquisitions

15 Jun
VNREA resource crunch has been creating a favourable opportunity for mergers and acquisitions in the property sector, an industry insider has said.

“Viet Nam’s real estate market is observing an unprecedented period of M&A activity, with both foreign and Vietnamese buyers and sellers active at this time,” Neil MacGregor, deputy managing director of real estate services provider Savills Vietnam, said.

“While deals have been scarce in recent years, there is now a growing range of opportunities available to investors.”

The Vietnamese real estate market was critically short of capital and developers were therefore seeking new sources of finance.

“Despite the recent clampdown on new lending to real estate, credit growth over the period from 2008 to 2010 has left many developers facing the pressure resulting from high interest rates, slow rates of residential sales and rising construction costs.”

There were a number of options open to developers requiring capital to move their projects forward, none of which necessarily required financing from banks if the right partner could be found.

These included outright sale of a project, seeking a joint venture partner, en bloc sales of residential units, and strata sales of retail and office space.

Many Vietnamese developers continued to hold large land banks and were able to sell land to third parties to raise capital to finance the construction of other projects.

“Meanwhile, foreign investors remain frustrated by the lack of feasible projects available to them.”

More active dialogue between local and foreign investors would ultimately lead to common ground and a realisation that both parties could benefit from partnerships, particularly in tough economic times.

A number of deals were done between local landowners and recognised foreign developers this year and this trend was expected to continue.

Singapore property group CapitaLand, for instance, announced last month two deals through an affiliate. One was with the Khang Dien Sai Gon Real Estate JSC to contribute 70 per cent to a project worth US$70 million to build almost 1,000 flats in HCM City’s District 2.

The other was the acquisition of a 65 per cent stake in Quoc Cuong Sai Gon for around $6 million. QCSG owns around 9,000sq.m of land in HCM City’s Binh Chanh District and plans to build around 800 flats.

Neil said another area where deals were highly anticipated was the retail sector since a growing number of international retail developers and operators sought to enter the Vietnamese market.

The number of deals in this sector would rise as local players recognised the benefits of partnering foreign players with many years of experience. A successful, branded retail development could also add significant value to larger mixed-use projects and accelerate residential sales.

“It is not just local land-owners and developers that are seeking exits from their real estate investments, but there is also a growing number of foreign-managed real estate funds seeking buyers for theirs.”

These potential deals could be seen across the real-estate sector, but include hotels, resorts, office buildings, as well as development land within larger projects.

He expected to see many more mergers and acquisitions in the real estate sector in the next 12 months.

However, there may be hurdles to these activities.

Ho Dang Quang of the law firm Bar Association said regulations on real estate M&A were vague.

Do Thi Loan, deputy chairwoman and general secretary of the HCM City Real Estate Association, said project valuation was one of the biggest problems for M&A activities.

Source: VNA

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