JLL: How investors are reacting to Covid-19 outbreak
The COVID-19 outbreak will cause inevitable impacts on Vietnam’s real estate market. Ms Khanh Nguyen – Head of Capital Market, JLL Vietnam
VIETNAM, 21 May 2020 – Quick and effective measures to contain the Covid-19 outbreak in Vietnam has helped to stop the spread and minimise economic impact, and businesses are starting to operate as usual since the start of May.
The World Bank has predicted that Vietnam will grow by 4.9% this year. In the first quarter, the economy grew 3.82% year-on-year. Though it was a 10-year first-quarter low, it remains a relatively high growth rate in the global common context. The World Bank’s assessment showed that Vietnam is still maintaining good fundamentals, with the highest growth rate in Southeast Asia and the wider Asian region.
Real estate Investment activity in Q1 2020 is likely to slow as investors are reacting to uncertainty. The tendency is that the existing investors who have deployed their capital in Vietnam are still very persistent with their investment strategy of continuing buying assets or joint venture with trusted local partners.
From our observation on historical transactions, majority of closed deals are coming from those traditional investors who are very familiar with the country’s risk volatility, market demand and looking for yield driven, good return, or regional portfolio expansion. Other foreign investors, especially financial and institutional investor, would take a more defensive strategy. Although these investors still remain well capitalised, major new investments would be put on pause for the time being, with the exception of deals in pipeline.
‘The mentality ‘Cash is king’ or ‘Save for rainy days’ has surfaced amid times of uncertainty as investors hold on to their cash and shift their focus solely on known markets’ says Ms Khanh Nguyen – Head of Capital Markets JLL Vietnam. ‘They would exercise more due diligence and would experience slower execution process for existing transactions due to a suspension on all inbound flights to Vietnam in an attempt from local authority to contain coronavirus cases. However, technology such as virtual conference meetings would be used to lift some of the barriers to execution.’
For some local real estate developers and investors who have felt both the effect of scrutiny from local authority since last year together with tighten credit growth and the current coronavirus outbreak, thể are some short-term pressures on their cash flow and liquidity. As a result, some local developers actively raise capital through debt financing, such as loans, corporate bonds or seeking partners for capital. Although the outbreak of the disease in Vietnam has caused many businesses to face financial difficulties, we have not recorded the trend of selling bad debt assets from domestic real estate companies.
‘Many of the investors we work with remain calm and optimistic, and they also pledge to continue to commit to the Asia Pacific real estate market in the long term. Investors are currently holding off on investment, so the effects of COVID-19 will be more evident in Q2. However, effective containment measure has helped business in Vietnam to gradually returning to normal. We expect the position between buyers and sellers to be more balance, and the market will bounce back in the second half of 2020 and 2021’ says Khanh.
For the overall real estate market, we observe that the office and industrial sectors are still stable, with industrial being the most promising sector for growth. When factories shut down in China during the COVID-19 outbreak, many big companies were able to weather the production dip. According to JLL latest research, a number of multinationals had already taken steps to expand operations into Vietnam last year, in order to avoid new tariffs on goods exported from China to the U.S. And more are set to follow suite, in the hunt for alternative markets for production as prices rise.
Doing deals still faces challenges, due to a number of emerging market factors. For more M&A activities to take place in the market, Vietnam will need to achieve a higher level of transparency as well as a stronger legal framework to attract foreign investors. When the legal review process is completed, we expect supply growth to meet demand and the market will become more transparent and efficient for foreign investors.
Looking beyond, every challenge is an opportunity for growth and that businesses in Vietnam should grasp this as a chance to reconcile and reform. In the past, real estate M&A transactions were simple as direct transactions between buyers and sellers – either through project or company transfer. As we are more open to the world and that more and more institutional investors entering the market, deal structuring are expected to get more diverse and complex. With that growing trend, the role of professional property consultancy would be more enhanced to leverage the expertise and expedite the transaction process. This has already happened in other developed markets and that we believe Vietnam is embarking on its journey to become one.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.