Foreign investors struggle to conclude fruitful real estate M&A transactions

Jones Lang Lasalle Group (JLL) announced on June 14 that it has effectively advised on the sale of a portfolio of three prominent Southeast Asian hotels, one in Indonesia and two in Ho Chi Minh City.

The three hotels, including the Pullman Jakarta Central Park (Indonesia), the Ibis Saigon South, and the Capri by Fraser (both in District 7, Ho Chi Minh City), were sold smoothly in transactions exceeding $106 million in value. According to JLL, this is their first sale of a hotel portfolio in the Southeast Asian market in 2023.

At the end of May, Keppel Group announced spending approximately $135 million to acquire stakes in two properties from Khang Dien House Trading and Investment JSC in Thu Duc city – Emeria (6 hectares) and Clarita (5.8ha). Consequently, Keppel Group now owns 49 per cent of the two enterprises, while Khang Dien retains the remaining 51 per cent.

Neil MacGregor, managing director of Savills Vietnam, stated at the end of last month that the company's investment consulting division was working on more than five merger and acquisition (M&A) transactions worth between $50 and $100 million each.

In addition to the three negotiations involving office structures in operation in Ho Chi Minh City and Hanoi, with institutional investors from abroad as the purchasers, a number of domestic investors also have their sights set on hotel properties.

According to the Vietnam Association of Realtors (VARS), the number of outside investors engaged in and gaining knowledge about M&A deals for real estate projects is rising dramatically.

Notable is the array of Singaporean, South Korean, Taiwanese, Japanese, and Malaysian investors. However, according to VARS, the number of successful transactions to date has been extremely low, and no major M&A transactions have yet been disclosed.

According to VARS, the challenging economic climate has compelled multi-industry businesses to concentrate on their core markets, leaving them with only the capacity for small- and medium-sized transactions.

Only a few real estate developers in the country are able to organise the capital flows needed to buy, in light of their diminished liquidity and elevated financial costs. Therefore, VARS believes that foreign capital inflows alone can increase the volume of billion-dollar transactions. However, the majority of these are still in the evaluation and negotiation stages.

"Another reason why two parties may be unable to close a deal is that many project investors still have regrets or unrealistic expectations, or they encounter challenges when trying to generate a profit. Therefore, the asking price was not convincing," VARS explained.

In addition, legal barriers make many projects ineligible for transfer, even if they desire it. This is due to the inconsistency of the legal system and the complexity of land administration procedures, VARS added.

"The M&A capital flows, if executed and signed in the near future, are anticipated to be an impetus for the market's recovery," emphasised VARS.

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