EXS Capital: Envisioning Vietnamese real estate market post-COVID-19

As an experienced international investor, what are your general comments on the Vietnamese real estate market and investment environment?

Eric Solberg, founder, chairman, and CEO of EXS Capital

We have been a strong believer in Vietnam’s economy and real estate sector since 2011 and we still are, after 10 years.

We made our first investment in the local real estate sector in the 2012-2013 period when the interest rate was roughly at 26 per cent and the real estate sector was distressed. Since then, we are pleased to see that Vietnam’s macro economy has been improving and the Vietnamese government has also been doing a great job of stabilising the foreign exchange rate, thus creating a favourable environment for foreign investments. Foreign direct investment (FDI) data shows an upward trend from about $15.6 billion in 2011 to $38 billion in 2019 just before the COVID-19 outbreak, an increase of almost 2.5 times.

In the real estate market, we continue to see rising demand for office space, while residential real estate prices have likewise gone up, particularly for luxury residential real estate which has increased from $4,000 per square metre in 2013 to $7,000 per sq.m in 2020, representing a 75 per cent growth according to JLL.

The average trading prices of listed real estate developers have gone up by more than five times on a weighted average within the last eight years. Statistics help in decision making and we have good reasons to believe in market recovery and prospects. The Vietnamese government is doing well in containing COVID-19 while maintaining a favourable investment environment for FDI across sectors. We believe there is much more room to grow for the real estate market post-COVID-19.

How has EXS Capital reinforced market understanding and carried out investments in Vietnam?

EXS was established in 2007 as an independent investment firm dedicated to Asia-Pacific markets. EXS sponsors private equity investments into real estate businesses in partnership with expert management teams, either local developers or sector specialists, with the goal of building businesses to become market leaders.

We have been actively looking for investments in Vietnam since 2011 and made our major investment in 2012-2013. EXS, together with the investment vehicle called Lemongrass Master Fund I (LMF) managed by us with full discretion, are the first foreign investors in SonKim Land since 2013. In addition to our first investment in 2013, we have led multiple rounds of investments into SonKim Land in 2016 and 2019, totaling over $180 million.

EXS and LMF are collectively the largest foreign investors in SonKim Land over the past many years. SonKim Land used these international capitals to fund its acquisition and development of various real estate projects in Ho Chi Minh City, as well as the company’s day to day operation. At the moment, EXS and LMF remain as the shareholders with significant stake in SonKim Land.

With the capital backing from EXS, LMF, and other international investors over years, SonKim Land has transformed from a family run business with about 20 employees to a leading private real estate developer with over 300 staff. It was able to develop several key projects such as the Metropole Thu Thiem, Gateway Thao Dien, Nassim, and Serenity Sky Villas, among others, won multiple awards for best luxury property developer and built its name in the market.

After the outbreak of COVID-19, what changes have you witnessed so far in Vietnam and other markets in the region?

We have seen the strong growth of the luxury real estate segment over the past couple of years and we expect the trend will continue. In addition, as Vietnam has one of the fastest growing middle-income populations, with the on-going trend of urbanisation, we expect the mid-end residential segment will also thrive.

Other than traditional real estate segments, we also focus on new economy related real estate, such as data centres, co-living, flexible offices, and student housing in the region. With the young demographic in Vietnam, we believe there will be great investment opportunities in these tech, community, and sharing-economy segments.

We look forward to partnering with local entrepreneurs who share our vision, as well as holding high standard of corporate governance and integrity to build more great businesses in Vietnam.

You mentioned “standard of corporate governance and integrity”. What does this mean to businesses and investments?

Environmental, social, and governance (ESG) has been a key consideration of investments in the international capital markets and became even more important after COVID-19. It is a fundamental component to drive successful and sustainable business around the world.

In a fast-developing country like Vietnam, we expect any real estate developer who holds high standard of ESG, shows high standard of transparency and integrity will become the preferred local partner for international investors and a trustworthy developer to customers.

In contrast, any company who takes shortcuts or undermines the best practice of corporate governance is less likely to win trust from the international investors. We have seen early real estate players across Asia who play “fast and loose” with corporate governance and ESG matters. This kind of companies inevitably make some money, then find that no one will do business with them, capital dries up and they die. We also see our fellow investors to run very thorough due diligence during their investment processes, including but not limited to hiring local professionals to run independent reference checks, background checks, and audit.

For local real estate developers who are looking to raise money from international markets, corporate governance and transparency are key factors to drive better investment terms and better valuations, and therefore they are able to receive more funding to support their growth. We always recommend business leaders and professional management teams to take corporate governance and integrity seriously as reputation and trust are the fundamental components to build a great, sustainable business.