Vietnam's realty M&A market attracts interest, but no bites

Foreign investors have shown an interest in Vietnam’s real estate merger and acquisition (M&A) market in the first months of 2023, but successful transactions have mainly failed to transpire.

At a Friday seminar held by The Investor to discuss measures to unleash domestic and foreign investment into Vietnam's property market, experts said the M&A sector is heating up but many barriers remain.

CBRE Vietnam executive director Dung Duong said that in the first quarter, her firm welcomed more foreign investors to explore the market than in previous years, half of whom were newcomers.

“Previously, most of the investors came from Hong Kong, Singapore, the U.S., and Japan, but now we are welcoming those from South Africa, the United Arab Emirates, and Saudi Arabia,” she said.

However, she noted that among total capital raised by Vietnamese enterprises, only about 10% came from foreign investors despite their great interest.

Explaining the reasons for this humble figure, she said: “Investors are like vultures who are very eager to enter the market, but not all Vietnamese businesses are ready to welcome them.”

In addition, foreign investors offer very high lending interest rates of about 18-20%, while Vietnamese enterprises will only accept rates of 13-15%, she said, describing it as one of the biggest obstacles.

“Vietnamese firms are in a difficult period right now and want to raise capital for their projects they are stuck in, but these projects have already been used as collateral, and foreign investors do not accept that,” she said, adding that local businesses lack cash flow transparency and loan payment plans to convince foreign investors.

So far this year, there have been no really M&A deals in the Vietnamese property market, except a foreign investor’s purchase of a small land plot that accounted for only 0.1% of the total FDI in the country.

Echoing Duong’s view, KPMG Vietnam senior partner Nguyen Cong Ai said many foreigners have only “walked around and taken a look”.

Vietnamese businesses have spent a lot of money on site clearance, developing projects and covering legal procedure costs, so it is a difficult decision for them to sell their properties at a cheap price, he said.

“However, in the current situation, foreign investors hold the upper hand in terms of cash flow and they have the right to bargain prices,” he noted.

Ai acknowledged that the real estate M&A market is forecast to continue facing huge difficulties in the remaining months of the year, with successful deals only likely to be seen in the fourth quarter of this year or early 2024.

Earlier, the expert said that although M&A transactions in Vietnam fell in 2022 compared with 2021, opportunities are expected to remain abundant in 2023, despite concerns about prolonged difficulties in the global economy and geopolitical uncertainties.

He cited Vietnam’s 2022 GDP growth exceeded 8%. The economy is forecast to slow down to around 6-6.5% in 2023 and beyond, but Vietnam is still a rising star in the global market, as the majority of other economies are projected to post slow or even negative growth.