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Foreign Capital Dominates Real Estate M&A

Trường Lăng

December 10, 2023

News

Foreign Capital Dominates Real Estate M&A

Trường Lăng

December 10, 2023

During the first 7 months of the year, investor groups from Singapore, South Korea, Taiwan, Japan, and Malaysia have actively explored real estate projects for buying, selling, and merging (M&A), with a total value reaching approximately 1.4 billion USD.

Foreign Investors Operating Vibrantly

Recently, Surbana Jurong Group from Singapore signed a cooperation agreement with Kim Oanh Group to develop projects where Kim Oanh is the main investor. According to the agreement, Kim Oanh Group and Surbana Jurong will collaborate to develop a series of real estate projects including residential properties, resorts, and office buildings in the southern region. Additionally, Surbana Jurong will be responsible for urban planning consultancy and architectural advice for the projects undertaken by Kim Oanh Group.

Ms. Dang Thi Kim Oanh, Chairwoman of Kim Oanh Group’s Board of Directors, stated that the company is focusing on developing a line of reasonably priced, easily accessible social housing products that ensure good and sustainable quality, providing a green, clean, and safe living environment. The strategic cooperation agreement with Surbana Jurong enables the Group to develop Singapore-standard social housing in Vietnam.

Similarly, Hung Thinh Group has also joined hands with Marubeni – the largest diversified trading and investment conglomerate in Japan. The two parties are collaborating to invest in the development of a project located in the new administrative center of Thu Duc City, with a total expected investment of over 10,000 billion VND. Mr. Masato Tachibana, a representative of Marubeni, mentioned that both parties will carefully evaluate the actual situation to implement efficient and rapid deployment steps.

ESR Group Limited Invests $450 Million to Increase Ownership in BW Industrial Development Joint Stock Company

In the context of a challenging market, foreign capital is expected to become a ‘safety exit’ that helps real estate businesses recover. Survey results indicate that the number of foreign investors interested in projects in Vietnam is increasing significantly. However, in the first few months of this year, M&A transactions in the real estate sector have not progressed rapidly.

Ms. Dao Thien Huong, Deputy General Director of EY Vietnam, stated that in the first 7 months of 2023, the M&A market value in Vietnam reached nearly 3.2 billion USD, a decrease of 62% compared to the same period last year. Among them, M&A in the real estate and construction sector reached 1.4 billion USD with 24 transactions, a decrease of 65% compared to the same period in 2022.

In terms of segments, industrial real estate is the most attractive segment for M&A deals (16 successful transactions). Currently, foreign investors make up about 92% of the buyers in real estate M&A deals in Vietnam, with the majority coming from Taiwan, Singapore, and South Korea.

Notable among these is the ESR Group Limited transaction – one of the largest asset management companies in Asia-Pacific. They invested 450 million USD to increase their ownership in BW Industrial Development Joint Stock Company in January 2023. This is the largest deal in the real estate market and stands as a prominent example in the industrial real estate segment.

Regarding the residential and urban area segment, Gamuda’s acquisition of a 3.68-hectare project in Thu Duc City for 305 million USD in early July leads the segment. In addition, there are other notable deals, such as Keppel Corporation repurchasing an 11.8-hectare project from Khang Dien for 277 million USD and a retail project in the center of Hanoi for approximately 80 million USD.

Recognizing the Challenges

According to Ms. Dao Thien Huong, there are still many ongoing real estate M&A negotiations, but there are significant challenges that persist.

“There are four important factors in the transaction structure, including price expectations, legality, transparency, and financial structure. The current difficulty lies in the legal framework for foreign investors to own real estate in Vietnam, which is still not fully refined,” said Ms. Huong.

Regarding this issue, lawyer Ngo Thi Van Quynh, Director of An Legal Law Firm, assessed that complex legal procedures are the main reason for the slower progress of M&A transactions.

To meet investment requirements, it’s often necessary to take a roundabout route through 3 to 4 intermediaries, making it very complex to control investment cash flow. To address these challenges, the parties involved spend a lot of time and costs. Some projects even take several years to supplement M&A documentation, and the outcome can’t be predicted as decisions and opinions need to be awaited from relevant authorities and departments,” lawyer Van Quynh said.

Currently, the government has taken many positive steps to improve the legal framework in the Draft Law on Real Estate Business (amendment), which includes provisions to facilitate foreign investors in project development. It is hoped that starting from 2024, real estate project M&A will become more vibrant.

Apart from legal matters, buyers are prioritizing projects with prime locations and development potential, but they are requesting price discounts of 10-20%. Meanwhile, some sellers are hesitant to reduce prices. It should also be mentioned that there are still some enterprises and projects lacking financial transparency, without independent audit units, which can hinder investors in making M&A decisions.

Therefore, foreign investors often choose to collaborate through joint ventures or capital contribution to jointly develop projects with domestic enterprises. This approach leverages the strengths of both sides, where local developers understand the market, legal aspects, and conduct necessary procedures, while foreign investors bring capital strength and project development experience.

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