Foreign investors dominate Vietnam's realty M&A market

As dominating players in Vietnam's merger & acquisition (M&A) real estate market, foreign investors are expected to pour a large amount of capital into the Vietnamese real estate market in the period 2024-2026, write Cushman & Wakefield analysts.

Thanks to political stability and favorable investment incentive policies, along with impressive achievements such as signing important FTA agreements and achieving comprehensive strategic partnerships with countries such as South Korea and the United States, Vietnam’s economy has been witnessing rapid growth.

U.S. President Biden's recent visit also brought on an agreement on comprehensive cooperation and development of the high-tech and semiconductor manufacturing market between the two countries.

Vietnam has been and continues to be of interest for a large amount of foreign direct investment (FDI). Vietnam's real estate market, notably Ho Chi Minh City - the economic and financial center, and Hanoi - the country's political center, have developed rapidly after the Law on Real Estate was issued in 2003.

Since then, M&A activities in general and within the real estate sector in particular have also increased significantly in both quantity and transaction value.

From the beginning of 2023 until now, although the economy still faces many challenges, real estate investment and M&A transactions still take place. However, according to data from RCA and Cushman & Wakefield, there are fewer transactions in 2023, with a lower total value than in 2022.

The total value of real estate investment and M&A transactions temporarily calculated in the first nine months of 2023 reached $729 million, down 33% compared to the same period of 2022, due to the lack of high-value deals (the year 2022 recorded the deal to acquire the Capita Place office project with a value $500 million).

Among them, Asian investors from Singapore, Malaysia, Taiwan, and Korea are leading the way with the advantage of geographical location, cultural similarities, and understanding of local laws.

Overall, 2023 transaction data shows that foreign investors still account for the majority of real estate transactions, purchases, and investment activities; while the domestic sector accounts for less than 10% of the number of transactions. This is because domestic businesses are still facing many unfavorable factors such as the general difficult situation of the economy, unresolved project legalities, corporate bonds problems, and lack of access to capital sources.

"During a series of investment events Cushman & Wakefield held earlier this year, we conducted a survey with our Asian Pacific clients on which markets they were most interested in. Most of the responses are very positive regarding the investment potential of Vietnam," said Trang Bui, country head of Cushman & Wakefield Vietnam. "As the global economy is going through uncertainty, an emerging country like Vietnam has become quite a potential market for investment."

Most importantly, the attractive rate of return in an emerging market like Vietnam is an important factor in the investment decisions of foreign investors. Looking back at transactions from 2018 to the first nine months of 2023, Vietnam recorded a total of $4.2 billion in investment capital and real estate M&A, of which housing and industrial assets accounted for a large proportion, 46% and 28% respectively, according to data from RCA and Cushman & Wakefield. This shows that foreign investors' appetite is still focused on traditional assets in Vietnam, mainly serving the needs of real end users.

High-end housing market - the top choice of foreign investors

Since the formation of the Vietnamese real estate market, the housing sector has always been attractive to both domestic and foreign investors. Vietnam is ranked among the 15th most populous countries in the world with 100 million people, 70% of this population is between the age of 15-64. With increasing disposable income and rapid urbanization, especially in Hanoi and Ho Chi Minh City, Vietnam has increased its appeal to investors who want to target the housing sector.

More than 15 years ago, FDI capital flows were only concentrated in the high-end housing segment. Well-known names in the market such as Keppel Land and CapitaLand are among the first to offer high-end real estate projects in Vietnam, such as The Estella or The Vista. The total supply of luxury apartments in HCMC at that time was about 1,700 units, of which around 1,000 units came from FDI projects.

By the current cycle, the market is starting to see more investors like Hong Kong Land, Frasers Property or Mapletree. In addition, there are other reputable investors from Japan such as Daiwa House, Nomura and Sumitomo investing in projects in District 7, or Korean corporations such as Lotte Group and GS investing in Thu Thiem New Urban Area. This has helped the number of luxury apartments of foreign investors in HCMC to increase significantly to 23,800 units by Q3/2023, compared to only 1,000 units in 2008.

Increase of capital flows into commercial and industrial real estate

Since 2018, the industrial and logistics real estate segment has outperformed most other asset classes, thanks to the growth of manufacturing & processing, exports, e-commerce, transportation, and warehousing. The manufacturing and processing industry accounts for the majority of total FDI, with many businesses being interested in Vietnam as a new destination for expansion in Southeast Asia.

Some recently announced investments include Frasers Property Vietnam's announcement of their partnership with Gelex Group - the leading multi-industry investment group in the country, to jointly develop a portfolio of industrial parks and expansion into the industrial real estate market throughout the North, with an expected investment of $250 million. The other deal is Foxconn leasing more land in Vietnam, with a total value of about $100 million in Quang Chau Industrial Park and WHA Industrial Park 1. In addition to Asian investors, the interest of European and American investors for Vietnam's real estate market is also increasing.

Offices, retail, and hotels are always sought-after when opportunities arise

Foreign investment funds continue to look for investment opportunities that are well-located office real estate in Vietnam, especially in HCMC. Over the past five years, rental prices and rental capacity of office buildings have improved, especially with Grade A office buildings of good quality. Notably, in 2022, for the first time, the office market recorded a record large M&A deal with a value of $557 million.

After two years, resort real estate investment activities slowed down due to the negative impact of the Covid-19 pandemic. However, from 2022 until now, the market has begun to record transactions in the resort real estate segment, notably the sale of two hotels, ibis Saigon South and Capri by Fraser in HCMC. In 2023, the market also witnessed a major transaction in the retail sector worth up to $52 million by Singapore's Keppel Land Group.

Challenges for foreign investors when in M&A process

On the buyer side, the main obstacle we observed is still finding good quality opportunities with stable income streams. Such opportunities are still limited in Vietnam. In fact, although the economy is slowing down and many assets are being divested, the number of projects foreign investors who can capture the opportunities is not many. The reasons range from legality, the difference in price expectations from both sides and the compensation process.

Besides, most real estate offered for sale on the market is often not widely and officially announced, leading to very limited access to good properties. Therefore, most foreign investors often seek the support of professional consulting agencies to enter the market.

Market outlook - welcoming large capital flows

Although there are still many challenges, Cushman & Wakefield believe that this is still the right time for businesses to increase activities, especially those with strong financial strength. Because currently, interest rates have decreased, many new decrees and regulations to remove obstacles for real estate projects have been issued, in addition to many other solutions that the government is implementing to improve the quality of real estate projects, transparency, compliance with the law as well as the business environment in general.

Cushman & Wakefield forecast that a large amount of capital from foreign investors is expected to be poured into the Vietnamese real estate market in the period 2024-2026, many transactions are in the negotiation process with a positive outlook. The expected investment goals still lie in finding clean, good-quality land funds with real value, as well as having legal ownership rights, complete compensation, and development potential.