Clearer, more relaxed legal framework to boost real estate M&A activity: Savills

An “exciting” period is in store for real estate M&A activities in Vietnam in the next two years once the legal framework is clearer and more relaxed, says Neil MacGregor, managing director at Savills Vietnam.

A Savills report says MacGregor’s prediction for the next two years is based on the market’s “remarkable resilience.”

It notes that a significant regional decline in real estate transactions has left substantial capital available for investment.

Despite high interest rates, the growth prospects and comparatively higher yields in Vietnam remain attractive to foreign capital, it says, adding that throughout 2023, Savills has continued to receive strong enquiries from investors seeking to invest in Vietnamese real estate.

Most of the investment is likely to come from Asian countries like Singapore, Korea, Thailand, Malaysia and Japan. These countries have been active investors in Vietnam and are expected to increase their investments in the next two to three years.

There may also be interest from Middle Eastern investors. Vietnam's industrial sector, in particular, will benefit from the many free trade agreements (FTA), resulting in a diverse investor base and increased investment in manufacturing and industrial real estate.

Exciting market

Vietnam’s strong economic fundamentals, attractive demographics, infrastructure development, urbanization, strong FDI, and a rapidly growing middle class makes it an exciting market for prospective investors, the report says.

Given the scarcity of residential supply, any investor successfully bringing a project to market is likely to tap into strong underlying demand, especially if owner-occupiers in the growing middle class are targeted.

“In Ho Chi Minh City, continued robust performance, despite new Grade A supply, means opportunities persist for office investors and developers. Those delivering or repositioning office buildings with green credentials will attract a rental premium,” the report says.

It noted that office markets in HCMC have defied global trends, maintaining strong occupancy rates and steady rental growth.

“The HCMC office market stands out as one of the best performers in the Asia Pacific region, with green credentials benefiting premier office buildings and ensuring high take-up rates and rental premiums.”

Land law changes

MacGregor warns in the report that real estate investors in Vietnam must overcome bureaucratic hurdles, particularly in settling land use fees.

However, proposed changes to the Land Law are likely to expedite processes, making housing more accessible for buyers, while generating much-needed revenue for developers.

At present, investors are exercising “extreme caution” regarding the legal ownership of projects. Land use fee settlement and approval of 1/500 master plans are crucial for residential development projects, the report notes.

The scarcity of projects with clear legal ownership and the necessary approvals challenges prospective investors, resulting in a credit crunch as banks struggle to secure collateral for real estate projects.

“Uncertainty around the completion of key infrastructure projects adds complexity to determining the optimal timing for real estate project development,” the report says.

Regarding changes in the legal framework, the report says they have not been fully implemented, with local authorities remaining cautious in their execution.

“Until there are tangible changes and progress in land use fee settlement and the issuance of land use right certificates, completing M&A activities will remain challenging,” the report says.

It cites the example of condotel products, where local authorities remain hesitant to issue titles for projects, despite recent clarifications in the legal framework.