Expansion potential despite downturn in real estate M&As

Expansion potential despite downturn in real estate M&As, illustration photo/ Source: freepik.com

The total value of real estate investment and M&A transactions temporarily calculated in the first nine months of 2023 reached $729 million, down 33 per cent compared to the same period last year due to the lack of high-value deals.

Of those that are investing, Asian investors from Singapore, Malaysia, Taiwan, and South Korea are leading the way thanks to advantages of geographical location, cultural similarities, and understanding of local laws.

Foreign investors are active in the process of hunting for projects. Recent major deals include Gamuda Land acquiring a 3.68 hectare project from Tam Luc Real Estate JSC in Thu Duc of Ho Chi Minh City in July for $315.8 million.

Singapore’s Keppel Corporation also in July announced that Keppel Land, through its wholly owned subsidiary, VN Prime Vietnam Co., Ltd., acquired a stake in ProjectCo, which will hold a retail property in Hanoi.

The project is part of a mixed-use commercial development, which is under construction and slated for completion in 2025. VN Prime will acquire a 65 per cent interest in ProjectCo for an aggregate consideration of approximately $51.2 million. Binh Minh Investment and Trading Development JSC will hold the remaining 35 per cent interest in ProjectCo.

In June, Everland Opportunities IX Limited, a real estate development firm based in Hong Kong, acquired three properties – Ibis Saigon South Hotel, Capri by Frasers in Vietnam, and Pullman Jakarta Central Park in Indonesia – from Strategic Hospitality Holdings Ltd., a subsidiary of Thai conglomerate SHREIT, for $106 million.

In industrial property, ESR Group Ltd., one of the largest asset management companies in Asia-Pacific, spent $450 million to increase its ownership in BW Industrial Development in January. This was the largest deal in the real estate market this year.

Le Xuan Dong, managing director of Market Research and Consulting at FiinGroup, said that the M&A market has witnessed some changes recently.

“In 2022, the majority of deals came from Vietnamese organisations and businesses, but since the beginning of 2023, due to difficulties that domestic businesses are facing, foreign businesses are actively rising in M&A activities,” Dong said.

“They (foreign investors) understand that this is a difficult time for the whole market, but it is also an opportunity for business expansion in this country. Therefore, the number of foreign transactions carried out increased sharply in the first half, most notably in real estate and banking,” he added.

Foreign capital flowing strongly into the real estate market is raising concerns about projects of domestic enterprises being acquired at cheap prices. However, Dong said the time of the big fish swallowing up the smaller ones had passed, and the cash flow is now tending to cooperate in investment, rather than buying and selling outright.

“The cash flow of foreign investors brings more positive than negative aspects. If we look at the competition aspect, deeper foreign participation will help promote transparency, improve quality, and diversify projects. This is also a motivation for domestic investors to strive to compete and upgrade projects when the market returns to a stable development trajectory,” Dong added.

According to the latest release from Cushman & Wakefield Vietnam, overall, 2023 transaction data shows that foreign investors still account for the majority of real estate transactions, purchases, and investment activities; while the domestic sector accounts for less than 10 per cent of the number of transactions.

“This is because domestic businesses are still facing many unfavourable factors such as the generally difficult situation of the economy, unresolved project legalities, corporate bond problems, and lack of access to capital sources,” Bui Trang, country head of Cushman & Wakefield Vietnam, told VIR.

“We conducted a survey with our Asia-Pacific clients earlier this year on which markets they were most interested in. Most of the responses are very positive regarding the investment potential of Vietnam. As the global economy is going through uncertainty, an emerging country like Vietnam has become quite a high-potential market for investment,” Trang added.

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