Foreign investors’ growing appetite in realty ventures

Vietnam has signed a string of free trade agreements (FTAs) late last year. What impacts do these FTAs have thus far on the local real estate market?

These FTAs will cast both direct and indirect impacts on the property sector mergers and acquisitions (M&A) market.

For instance, the industrial park and industrial property segment will incur direct influences. This is due to investors and businesses enlarging their production-business, or moving their production workshops from countries that are not benefitted from investment privileges under the Trans-Pacific Partnership agreement (TPP) to TPP member countries like Vietnam, to open factories, use local workforce, and then export products to get the benefits.

In respect to the indirect effects, when more industrial property projects come on the horizon, other real estate segments such as office and commercial housing will subsequently get a boost in development to meet market needs.

Consequently, during the period, foreign investors come to Vietnam in search of potential real estate projects or other assets have jumped two to three fold compared to previous time.

What is foreign investors’ appetite like when stepping into the Vietnamese real estate market?

Foreign investors are paying attention to the Vietnamese market on account of high economic growth and stable political situation.

In countries with abundant financial sources like Japan and South Korea, the interest rate is often low; it is a mere 1 to 2 per cent in Korea and zero per cent in Japan. That is why foreign investors are satisfied with a margin rate from 6 to 9 per cent (in US dollars).

In addition, foreign investors show preference to the land having clear and transparent legal records and are willing to pay 10 to 12 per cent higher compared to the average market rate to gain ownership of these areas.

What do you expect the M&A market growth to be in the later part of this year?

As far as we know, a sizable deal involving a shopping mall transfer will take place in Hanoi in the not distant future. Our company Soho Vietnam has just completed approximately $30 million deal to develop a mixed development with a scale of 1,000 apartments in Hanoi. Animated transactions were anticipated in the M&A market, but available projects on offer may be increasingly scarce.

Financially capable foreign investors who bought projects at good prices in the past when the property market was down are now focusing on developing these projects. This will make them more cautious when choosing other projects to invest in.