Interest piqued

Interest piqued

Photo: Viet Tuan

Foreign investors are increasingly drawn to the potential Vietnam’s real estate sector holds.

by Ms. Phuong Le / Investment Analyst, Capital Markets, Vietnam, at JLL

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Vietnam’s economy continued to experience strong growth in 2017. GDP had reached 6.81 per cent by the end of the fourth quarter, exceeding the government’s target of 6.7 per cent and coming in higher than the figure during the 2011-2016 period. Foreign direct investment (FDI) reached record levels, of nearly $35.88 million, representing a 44 per cent increase compared to 2016. Vietnam remains one of the most favorable destinations for FDI in Southeast Asia.

The country’s real estate market also continues to show irresistible appeal to foreign investors, mostly through merger and acquisition (M&A) activities. Joint ventures have become popular, with foreign developers, who have strong financial capacity and track record, joining forces with local developers who possess land and strong connections in the local community. JLL has observed that there is hundreds of million dollars waiting to be poured into the market in most segments, including residential, office, retail, hospitality, and industrial. Investors are also from many different countries, such as Japan, South Korea, and Singapore, with an increasing number of groups from mainland China.

2017 proved to be an active year for M&As in the real estate sector. Thu Thiem, a new urban area in Ho Chi Minh City, saw a number of high-profile deals, including the joint venture struck between the Ho Chi Minh Infrastructure Investment JSC (CII) and Hong Kong Land (HKL). On December 12, the two parties signed a cooperation contract to jointly develop the Thu Thiem River Park project. 

Investors remain bullish about Vietnam’s real estate market, with growing numbers looking to acquire “clean and clear” land plots. In the fourth quarter of last year, CapitaLand Limited acquired a 1.45-ha site in Ho Chi Minh City’s District 4 for S$53.5 million ($40 million); its ninth residential development in the city and eleventh nationwide.

In another residential transaction, VinaLand Limited, one of the real estate arms of VinaCapital, divested its entire stake in the Vina Square Project, a 3-ha development in District 5, Ho Chi Minh City, to the Tri Duc Real Estate Company for net cash proceeds of approximately $41.2 million, including repayment of shareholder loans. Once completed, the mixed-used development will supply over 1,000 residential apartments together with retail and office space. 

The demand for operating office buildings in prime locations continues to rise. In the first month of 2017, CapitaLand entered into a conditional agreement to acquire a prime commercial site in Ho Chi Minh City’s CBD to develop its first international Grade A office tower in Vietnam. CapitaLand acquired a 100 per cent stake in the 0.6-ha site with a gross floor area of 106,000 sq m. Mitsubishi, meanwhile, purchased the 11,000 sq m office component of Le Me’ridien from the Tien Phuoc Real Estate JSC and the 990 Co. Ltd. 

While a handy proportion of demand has come from offshore capital sources, the Continental Tower deal is the latest expressing the commitment of domestic buyers. 

The strong demand to invest in Vietnam’s real estate market is in line with continued demand for property in Asia-Pacific, with investment volumes in the region reaching $97 billion in the first nine months of 2017, up 12 per cent year-on-year, and was on track to reach our annual forecast of $130 billion. The blockbuster deal involving the transfer of Asia Square Tower 2 from BlackRock to CapitaLand Commercial Trust for S$2.1 billion ($1.5 billion) was the largest office deal in the Asia-Pacific region last year and spurred recovery momentum in Singapore. 

In 2017, Vietnam’s real estate market welcomed a record number of foreign capital investors, mainly private equity funds, looking to deploy their capital quickly and efficiently. Notable transactions involved the establishment of joint ventures and strategic cooperation deals between Warburg Pincus and the Becamex IDC Corporation to develop international-standard logistics warehouses and to share capital market experience and assist Becamex to grow its business and customer base globally. 

Investor appetite 

Traditionally, residential is one of the most attractive sectors. Investors are now turning their attention to the commercial market, however, especially Grade A office space in prime locations with expected potential growth of capital value and yield compression (7-8 per cent). We notice that office rental rates in Vietnam are higher compared to neighboring countries, which reflects an overall shortage of supply. In addition, investors continue to show a good appetite for hotel assets. 

Challenges in real estate investments

For residential and commercial projects, foreign investors often search for “clean” land (i.e., with site clearance and site compensation completed, land use fees paid, land use rights in place, and good planning). Such assets, however, are rare, as Vietnam’s real estate market remains immature. 

In addition, the market is tightly held and open market offerings in the high-growth, high-potential sector are few and far between. Accessibility to good assets is quite limited, with most foreign investors working with investment consultancies to enter the market. 

Market Outlook - Growing Appetite

There is currently strong interest in Vietnam’s real estate sector from foreign investors and we expect this to continue for the foreseeable future. There will continue to be a strong preference for income-producing assets, but given the shortage of this type there will be a continued focus on development activity. We are seeing more partnerships and joint ventures forming between local companies and foreign investors, which we also expect to continue. 

When looking at the market as a whole, we expect continued growth in most asset types. Hospitality has been interesting over the past year, with new funds with foreign capital now specifically targeting the sector. We expect this trend will continue, and also in other growing sectors such as industrial and alternatives like education. The affordable housing market is another key growth sector, drawing specialist capital sources who identify value in the underlying fundamentals, including the growing middle class.

There are more foreign investors entering Vietnam and opening new offices here. Typically, these investors previously operated on a fly-in fly-out basis during their first investment, while subsequent investments have resulted in them setting up local teams comprising a combination of local and expat staff. Due to the strong focus on Vietnam from regional investors, we expect M&A activities to reach record levels in 2018. 

The total value of transactions consulted by JLL reached over $250 million recently and most of the transaction types are property transfers and joint venture partnerships between Vietnamese and foreign developers.
  • TAGS
  • M&A
  • real estate sector
  • Vietnam’s economy
  • GDP
  • FDI
Nguồn: vneconomictimes.com