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News Release

Vietnam

Vietnamese M&A property activities - "Clear" land shortage

By Stephen Wyatt, Regional Director, JLL


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Vietnam, 1 July 2017 – Vietnam has become an attractive destination for many foreign investors largely due to the country's friendly policies encouraging FDI​, its political stability and strong economy. The level of FDI has continued to grow year-on-year due to these strong fundamentals with newly registered FDI to USD 19.2 billion in first half of the year, representing a rise of 54.8% y-o-y. Vietnam remains one of the most favourable destinations for foreign investment in South East Asia.​  Whilst FDI in real estate is set to increase over the coming years, the market is still dominated by domestic investors that can take advantage of the local market knowledge and an ability to close transactions within tight timescales.  

Vietnam and other countries in region

Global transactional volumes stabilised in the first quarter of 2017, coming in at US$136 billion, roughly flat on the levels recorded in Q1 2016​. Real estate investments remain attractive from a yield perspective; however, pricing concerns due to continued pressure on occupier fundamentals in key global markets could be an issue, with forecast rental growth in 2017​ little changed from 2016. Investment volume across Asia Pacific's commercial real estate market began 2017 at the same pace as a year ago with first quarter transaction levels coming in at US$25 billion, up 1% on the 12 months ago but down 43% on the previous quarter. The shortfall was largely confined to Australia and Hong Kong (where capital outflow restrictions impeded Chinese cross-border transactions), as well as South Korea. Japan and Singapore led the quarter.

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Figure 1:Quarterly Direct Commercial Real Estate Investment
(2007-2017)

Source: JLL, April 2017

​Nguồn: JLL, tháng 4 2017

Cross-border investment in the region remained active in Q1 2017, ​accounting for 35% of total transaction volumes. Inter-regional purchaser activity dominated intra-regional this quarter, representing about 67% of cross-border purchaser activity.

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Figure 2: Global transaction volumes by sector, Q1 2016 and Q1 2017

Source: JLL

On the other hand, Vietnam - an emerging market is drawing lots of attention from foreign investors​. Real estate FDI expects to reach a new record in 2017. The country is considered as one of the fastest growing nations in Asia over the past few years. By 2050, Vietnam will be ranked as 20th key economy in the world.

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Figure 3: Top 20 economies in 2050 and annual growth rate in 2016-2020

Source: PWC, JLL estimates

Growth in M&A in Vietnam​ is accelerating partly because of its continued global integration, socio-political and macroeconomic stability as well as structural reform in banking and finance, public investment and State-owned enterprises. The manufacturing sector dominates FDI with a growing number of companies looking at Vietnam as an alterna​​tive to China​. Real estate was ranked fifth in first half of the year with a total investment capital of USD 0.7 billion, up 16 percent on-year in which 39 projects were newly registered, worth USD 0.5 billion.

Currently, Vietnam's economy records moderate growth. For 2Q2017, Vietnam witnessed GDP growth of 5.7% according to the scenario of the Nation Centre of Socio-economic Information and Forecast (figure 5). Its GDP growth is set to achieve 6.7% by the end of 2017 that may be a challenge due to a relatively slow start to the year. Year-on-year growth is highly competitive and managed to outpace most of its neighbours. Vietnam is in its golden demographic, 25% and 70% of the population are in the range of 10-24 years old and 15-64 years old respectively.

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Recent real estate deals and M&A trend in Vietnam

In 2017, a vibrant real estate market will elevate the number of merger and acquisition to a new record. The Vietnamese real estate market continues showing irresistible appeal to foreign investors, mostly through merger and acquisition. Joint ventures have become popular among foreign developers who have strong financial capacity and track record joining forces with local developers who own land and have strong connection with the local community. JLL observe there are hundreds of million dollars waiting to be poured into the market in most segments including residential, office​, retail, hospitality and industrial​. Investors are from many different countries such as Japan, Korea, Singapore, with an increasing number of groups from mainland China including CFLD, Country Garden, Jiayuan, etc.

Japanese investors are interested in increasing their presence in Vietnam. Last September, Kajima, one of the four biggest contractors in Japan, set up a joint venture with Indochina Capital to invest USD1 billion in 10 years. The primary focus must be on residential and hospitality projects in Hanoi, Ho Chi Minh City and Danang​. We expect Japanese investors will be one of the most active groups in the market this year. Their main focus is residential and operating asset such as serviced apartments and Grade A office.

Since beginning of this year, there are several notable transactions in the industry. In March, Singaporean company Keppel Land acquired the remaining stake (16%) of Southern Waterborne Transport Corporation (Sowatco) in Saigon Centre through subsidiary Krystal Investment Pte., Ltd. Hongkong Land will become a potential strategic partner with Ho Chi Minh City Infrastructure JSC (CII) in developing residential housing in Thu Thiem New Urban Area. In May 2017, Quoc Cuong Gia Lai sold its project in Ho Chi Minh City's Nha Be District to Sunny Island Investment for an undisclosed transaction value. Recently, Phat Dat Corporation announced that it has transferred a part of Everrich 3 project in Ho Chi Minh City. Hung Thinh Real Estate has its own strategy to purchase 20 long-delayed projects. Ten of them have been on progress of construction and started selling.

In addition, VinaCapital Vietnam Opportunity Fund Limited announced that it has divested its 70% of its stake in 198.5 ha-Dai Phuoc Lotus direct real estate project that is a residential-township development located in Dong Nai province to China Fortune Land Development (CFLD). CFLD has also signed an MOU with Tin Nghia Corporation to build a New Industry City (NIC) in Ong Keo Industry Park aligning with its plan to build dozens of industrial cities around South East Asia. Other Chinese developers are considering real estate projects in Vietnam.

Investor Appetite in Vietnam

Traditionally, residential is still one of the most attractive sectors. Investors are now turning their target to commercial market especially Grade A office in a prime location with expected potential growth of capital value and yield compression (7%-8%). We notice that office rental rate in Vietnam are higher compare to other neighboring countries which reflecting an overall shortage of supply. In addition, investors continue to show good appetite for hotel assets.

Challenge in real estate investment in Vietnam

For residential and commercial projects, foreign investors often search for "clean" land (i.e. compensation completion, site clearance, land use fees have been paid, land use right is in place, and good planning). However, those assets are rare as the Vietnamese realty market is still immature.

In addition, The Vietnamese real estate market is tightly held and open market offerings in this high-growth, high-potential sector are rare. The accessibility to the good assets is quite limited; most foreign investors are working with investment consultancy to enter this market.

Market Outlook- Bigger Appetites

There is currently strong interest in Vietnam real estate from foreigner investors, and we expect this theme to continue for the foreseeable future. There will continue to be a strong preference for income producing assets, however given the shortage of this type, there will be a continued focus on development activity. We are seeing more partnerships and Joint Ventures forming between local companies and foreign investors, we expect this trend to continue.

When looking at the market as a whole we expect continued growth through most asset types. Hospitality has been interesting over the past year with new funds with foreign capital now specifically targeting this sector. We expect that this trend will continue in hospitality, and in other growing sectors such as Industrial and alternatives like education. The affordable housing market is another key growing sector, now drawing specialist capital sources who identify value in these underlying fundamentals including growing middle class.

There are more foreign investors entering Vietnam, and opening new offices here. Typically, these investors were on a fly-in fly-out basis on their first investment, while now for subsequent investments they have set up local teams comprising a combination of local and expat operators. Due to the strong focus on Vietnam from regional investors, we expect M&A activities to reach record levels in 2017 and 2018.

 

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