M&A real estate deals on the rise

Commercial and hospitality sectors are seeing a surge in foreign direct investment- Le Toan

In the first six months of 2016, the total newly-registered foreign direct investment (FDI) capital in Vietnam reached $11.28 billion, up 105.4 per cent on-year. Real estate is the second most preferred sector with 25 new projects worth $604.8 million, making up 5.3 per cent of the total FDI volume, according to the Ministry of Planning and Investment.

“If we look at where the money is being dispersed, it is going across all sectors, especially commercial and hospitality sectors. Indeed, Cushman and Wakefield (C&W) Vietnam has received more requests from foreign investors who are looking for grade A offices, downtown retail space, big industrial parks, and prime residential development sites,” said Alex Crane, general director of C&W Vietnam.

In the first half of 2016, a series of M&A deals have been obtained by foreign investors. Remarkably, Mapletree Investment Pte has acquired a 100 per cent stake in Kumho Asiana Plaza Saigon, a serviced apartment, office and hotel complex in Ho Chi Minh City's District 1 for $215 million. Frasers Centrepoint Limited signed a deal with local developer An Duong Thao Dien to develop a residential-cum­commercial project in Ho Chi Minh City at an estimated cost of $85 million.

Crane said that more transactions are being seen in the real estate market like AB Tower and Le Meridien due to increasing foreign investment demand. These are two big office buildings that have transacted at prices above what most people in the market had expected, which indicates that Vietnam’s real estate market has been a hive for M&A activities.

Meanwhile, John Gardner, general manager of Caravelle Saigon, told VIR that M&A deals are happening a lot in Vietnam’s hotel segment, which will bring a great deal of new capital into the industry and stimulate market growth.

Some notable deals include Low Keng Huat Limited selling Duxton Hotel Saigon in downtown Ho Chi Minh City for $49 million and Singapore’s Keppel Land selling four-star hotel Sedona Suites Hanoi to BRG Group for $31.5 million.

Gardner emphasised that the companies bringing new funds to the market need to understand the international hotel industry as there is a big difference between the local and international hotel market. “If they can bring in foreign capital and know-how, it will help Vietnam’s industry grow while avoiding stagnation. Also, more international brand-name hotels coming to Vietnam will help raise the country’s profile in the tourism market.”

According to Kenneth Atkinson, executive chairman of Grant Thornton Vietnam, foreign investors are seeing the Vietnamese hospitality sector grow significantly. Thus, they are looking to buy into existing developments and newly-licensed projects to save time and effort.

What concerns foreign investors is the barriers to doing business in Vietnam. If they start to develop new sites, they care about the ease of getting licenses, the cost of the land, and the tax imposed by the government which is not getting lighter.

In addition, foreign investors understand that the market is difficult to get into and they cannot compete with local businesses when acquiring land and labour. As a result, they are looking at joint ventures with local companies.

According to the latest survey released by Grant Thorton, the Vietnamese hotel market is forecast to see an upwards trend in the next 12 months as tourism is on the rise. In particular, the increase in supply correlates with demand, and the M&A trend will continue over the next 12 months.

Meanwhile, C&W Vietnam estimated that over 51,000 square metres of new grade A and B is expected to be completed in 2016. The limited supply, in particular for large spaces, will keep rents stable with moderate increases likely by the end of the year.