09:49 (GMT +7) - Friday 27/04/2018


Stepping in

Released at: 16:17, 30/04/2017

Stepping in

Photo: Viet Tuan

M&A deals continue to be the primary method of investors entering Vietnam’s real estate market.

by Hong Nhung & Linh Ngoc

An Gia Investment and Japan’s Creed Group Investment Fund completed the acquisition of seven blocks of the Lacasa project in Ho Chi Minh City’s District 7 from the Van Phat Hung Group (VPH) on March 12. In March 2015, An Gia bought two blocks of the Lacasa project to develop its Angia Riverside and Angia Skyline projects and then bought the remaining five blocks. This is the sixth merger and acquisition (M&A) deal An Gia has concluded in recent years.

Vietnam’s real estate market has witnessed a flood of capable developers intensifying their M&A activities in order to secure projects with favorable locations. According to some experts, many property enterprises lack sales experience and have been unable to continue projects because they aimed at the wrong segment. Vietnam’s real estate market, as a result, has seen a host of M&As through cooperation between many investors, with numerous successful transactions conducted.

Favored approach

M&A activities in Vietnam’s real estate market continued to soar last year after a positive 2015, with deal volumes accelerating in recent months. Cushman & Wakefield (C&W) Vietnam reported that in 2015 there were 28 deals in the domestic property market, 18 of which were estimated at around $1.2 billion. As at the end of 2016 there were 24 deals completed, in which the five largest were estimated to total more than $1.3 billion.

Through M&As done to acquire projects, according to Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), property developers have been helping resolve inventories and bad debts within the real estate market. Enterprises facing difficulties have retrieved capital resources, paid debts, and restarted their business plans after selling long-delayed projects.

The opening months of 2017 have seen two notable M&A transactions, including the five remaining blocks of the Lacasa project being acquired for around $41 million by An Gia Investment and the Creed Group, which specializes in principal investment and property development. “After taking over the project from VPH, the company will exploit the project’s advantages, improve its design, add more utilities, and adjust prices to give customers greater access,” Mr. Luong Si Khoa, Vice Chairman of An Gia Investment, told VET. “This is also how we applied the last five M&A deals and found success.”

According to Mr. Khoa, there are two reasons why An Gia decided to pursue M&As rather than develop its own land reserves for new project construction. Firstly, “M&As help us save much time in completing legal procedures and dealing with issues related to site clearance and compensation,” he said. “If we develop new projects, this process may take more than a year, while the market has many good signs and we must quickly avail ourselves of the opportunities to introduce products.” 

Secondly, “most stalled projects have favorable locations with large land reserves and developed infrastructure and are near the city center, and we can promote new product lines in accordance with market demand,” he added. Mr. Masakazu Yamaguchi, Director of Creed Group Investment Fund in Vietnam, believes that while foreign investors have strength in finance and management experience, domestic firms possess advantages in large land reserves and an understanding of the local business environment and legal policies, so the combination of the two parties can create a range of competitive advantages. “In particular, we want to acquire ‘clean’ land reserves with full legal status in order to develop projects methodically, even if the cost of the land is higher,” he said.

The other major M&A deal early this year was the Hung Thinh Corporation purchasing a property project in Ho Chi Minh City’s Binh Tan district from the Binh Chanh Construction Investment (BCCI) for an undisclosed sum. Mr. Nguyen Dinh Trung, Chairman of Hung Thinh, told local media that this was the company’s second M&A deal with BCCI in the last six months. The first was a project, also in Binh Tan district, which was already built and selling apartments. Hung Thinh, he said, will continue with M&A activities in the future because it’s the fastest way to develop projects.

The Novaland Group has been especially active in M&A deals in recent years. It had only four projects in 2013 but its acquisition strategy and development cooperation has rapidly achieved a portfolio of over 40 projects in the mid- and high-end segments. It announced that it has a land reserve of nearly 10 million sq m of construction floor area, which is enough to ensure the company’s growth for the next five years.

The trend towards M&As in Vietnam’s real estate market became more evident after many project developers announced such strategies. In the last days of 2016 the Dat Xanh Group said it was seeking shareholder approval for a plan to set up a joint venture with the Sai Gon Real Estate JSC to develop the SaigonRes Riverside project in Ho Chi Minh City’s Thu Duc district. Dat Xanh contributed 75 per cent of the joint venture’s total capital of $42 million.

Tackling barriers

One legislative obstacle has proved troublesome. Developers are only permitted to sell projects after securing land use rights certificates for all or part of the projects. According to Mr. Chau, as the sale of a project is between investors and not between project owners and homebuyers, if the vendor has finished construction and investment procedures then the buyer can continue to complete these tasks.

He therefore suggested that property developers be authorized to sell all or part of a project, since they have completed site clearance and created “clean” land reserves for the project. At the same time, the sale of all or a part of a project should be considered a normal activity within the real estate business and an investment in accordance with enterprises’ needs.

Property developers have always focused on prime locations, but as new infrastructure opens up suburban areas there will be increasing numbers of investors considering projects outside of the traditional city core, according to Mr. Neil MacGregor, Managing Director of Savills Vietnam. Indeed, it has proven difficult for developers to secure city center sites and they have therefore shifted their focus to alternative locations that will benefit from improved infrastructure.

As Ms. Duong Thuy Dung, Director and National Business Line Leader at CBRE Vietnam, told VET recently, best-selling projects are not dependent on the segment or on low prices. A combination of three main factors - location, price, and quality - are what’s important. “If the project is in the affordable segment but located in an inconvenient spot and of low quality, then buyers will not be interested,” she said. “Conversely, if your location is good but prices are too high there will be no sales. It must be a combination of these three factors.” 

Many M&As have taken place recently but the problem is that the number of people who want to buy outnumber the products available. “There are insufficient products that meet the three factors above and buyers are wise, especially foreign investors,” Ms. Dung added. “They will carefully consider whether products have enough of those three factors. If not, there will not be many deals completed.” 

Looking ahead

Real estate M&A activities may see huge demand coming from foreign investors, who are still eagerly seeking “clean and clear” development sites. Despite the ongoing difficulties in finding good quality stock in the market, real estate is expected to be strong in 2017 thanks to the major growth momentum seen in Vietnam over recent years. HoREA has forecast that M&A activities in Vietnam’s real estate market this year will soar and is also a chance to resolve around 500 stalled or long-delayed projects in Ho Chi Minh City’s property market.

Plenty of developers have been rapidly growing through M&A activities and many investors and developers view M&As as one of the best ways to enter the market. Looking back on the expansion of key developers in the real estate sector, M&As were one of the greatest factors helping them to capitalize on opportunities in the market. According to Mr. Stephen Wyatt, Country Head of JLL Vietnam, many foreign investment funds have told JLL they want to increase their presence in Vietnam through investment cooperation or by buying existing projects, particularly profitable ones.

Savills Vietnam anticipates a very active 2017 with a growing number of M&A transactions across sectors and geographic locations. “With scarce opportunities for investors to acquire assets, especially office buildings and hotels and with attractive pricing levels, more and more investors are considering expanding their scale in the local market,” said Mr. MacGregor. “This creates excellent opportunities for less experienced land owners and developers, and those short of capital, to secure strong partners for their projects.” 

According to CBRE Vietnam, Vietnam’s real estate market is in the sights of many foreign investors and will welcome new faces in the time to come. Mr. Marc Townsend, Managing Director of CBRE Vietnam, has said that Vietnam has become a notable investment destination in Southeast Asia. 

Four major pitfalls in property M&As

  • Failure to read the small print: The market value of an acquired real estate portfolio can differ wildly from the value on which the deal price was fixed, exposing the acquiring company to significant financial risk.
  • Taking on risk without realizing: Property portfolios can be very big and very complex, containing all sorts of risks, ranging from security risks to environmental issues.
  • Poor alignment with the overall deal: Any newly-acquired property must support the broader deal strategy. For instance, if the objective of an M&A rests on consolidating or streamlining real estate, a property portfolio must allow this.
  • Rocking the businesses boat: Employees’ first thoughts when they hear about an M&A is whether they can still do the same job for the same money in the same place. If there’s a hint that their location may change, there’s a risk they may leave the company.

Source: JLL Vietnam

User comment (0)

Send comment