Optimistic outlook for M&A activities in Vietnam
Increasing mergers and acquisitions in the real estate sector amidst economic headwinds, as investors remain confident in the market’s long-term growth potential.
Despite temporary market downturn, the potential of Vietnam's real estate market continues to attract the interest of foreign investors and investment funds. The market witnessed vibrant M&A activities with several large recent deals, reflecting investor confidence in the economy in general and the property market, in particular.
According to Real Capital Analytics, total sales volume of officially announced real estate M&A deals in Vietnam totaled more than US$1.5 billion in 2022 - the highest since 2018. Transaction value totaled more than US$500 million in 1H23, up 41.2% compared to the pre-COVID 1H19.
In particular, Thailand’s Strategic Hospitality Extendable Freehold and Leasehold Real Estate Investment Trust (SHREIT) completed the largest hotel deals in selling IBIS Saigon South Hotel and Capri by Frasers Hotel located in HCMC to the UK-based LT Rubicon for approximately US$33 million in June 2023. In another deal, Keppel Land entered into binding agreements to acquire from Khang Dien Group a 49% interest in two adjacent residential projects in Thu Duc City for an aggregate consideration of US$136 million in the same month.
Figure 1: Sales volume transactions (2013 – 1H23) (US$)
Note: Including all property types and land transactions.
During the high growth period between 2014 and 2018, most high-quality assets were still in the hands of Vietnamese developers due to their well-established capabilities in land development, project execution and sales. Thus, it hindered the participation of foreign investors in developing new land. With the drastic change in the current market, local developers are forced to restructure their products and portfolio. They are more motivated and open to opportunities to collaborate with foreign investors.
However, transaction price did not decline as dramatically as expected, despite a rising interest rate environment and tightening access to capital sources. Over the past decade, high costs of acquiring and holding property have left landowners with limited room to cut the price significantly. Although investment interest persists thanks to the market's potential for long-term growth, the lack of flexibility in price negotiation has slowed market deal velocity recently.
In the near term, we expect to see more successful transactions announced as financial constraint among local landowners persists. As Vietnam is undergoing its legal reform with land law and housing law being revised and set to take effect in 2024, and global economic headwinds remain lingering, it is unlikely that the tightening financial situation of local developers will ease quickly. As a result, there could be more options for potential investors since more motivated sellers will be on the market. Given the country's solid market fundamentals for long-term growth, real estate investors will most likely find viable options for their expansion plans in Vietnam.