Overview on M&A activities in Vietnam 1H19
Demand from both local and international investors are still high despite limited opportunities
Vietnam, 6 Aug 2019 – Amid the prevailing global “high uncertainty” and growth slowing down, Vietnam’s economy still achieved stable growth with 6.8% in 1H19. The total foreign direct investment (FDI) pledged to the country was nearly USD 18.47 billion in 1H19, equivalent to 90.8% of the same period in 2018. Total registered FDI into real estate for the first 06 months of 2019 is US$1.32 billion, a decrease by 76% as compared to the same period in 2018 which is at US$5.54 billion. This is because of large amount of registered capital for real estate in the first half of 2018, mainly due to two projects: Smart City in Hanoi with total investment capital of of US$4.1 billion by Sumitomo Corporation and Laguna project in Thua Thien Hue with US$1.1 billion increase by a Singaporean investor. In overall, the registered FDI into real estate within 1H19 is still higher as compared to 1H16 and 1H17 at approximately US$0.6 billion and US$0.7 billion respectively.
Vietnam’s FDI (USD billion)
Source: General Statistics Office
Together with inflation rate remained stable at 3% against the same period last year and total import-export turnover reached new record at US$245 billion, Vietnam’s macroeconomic fundamentals Vietnam remains strong and the country is regarded as one of the fastest growing countries in Southeast Asia. With the EU – Vietnam Free Trade Agreement has been recently signed, this will enhance Vietnam’s position in its international integration process and competitiveness.
2019’s real estate market in Vietnam starts off with the Keppel Land’s divestment of Dong Nai Waterfront project. According to their press release in January this year, Keppel Land shall be divesting 70% interest in Dong Nai Waterfront City (“DNWC”) to Nam Long Investment Corporation with total consideration of VND 2,313 billion (approximately US$100 million). Both Keppel Land and Nam Long will jointly develop a 170 ha residential township located in Long Hung, Dong Nai Province.
Keppel Land has also recently publicly announced its acquisitions of three land parcels in Ho Chi Minh City. Through its wholly-owned subsidiary, Keppel Land has entered into a conditional sale and purchase agreement with Phu Long Real Estate Corporation to acquire 60% interest in the three sites with aggregate consideration of VND 1,304 billion (approximately US$56 million).
Spanning 6.2-ha in the Nha Be District, the three sites are situated 400 metres of each other, along the Nguyen Huu Tho arterial thoroughfare, according to Keppel Land’s official announcement. The partners plan to develop a total of about 2,400 premium apartments with ancillary shophouses, which will offer around 14,650 sqm of commercial space, on the sites. The total development cost for the project, inclusive of land cost, is expected to be in excess of VND 7,400 billion (approximately US$320 million).
Lotte FLC Joint Stock Company, a joint venture between FLC Group and Lotte Land (another subsidiary of Lotte Group), has been formed with a chartered capital of VND556.5 billion (US$24.1 million) to operate in the field of real estate, according to National Agency for Business Registration. Lotte Land will own 60% of Lotte FLC and the remaining stake is held by FLC and its affiliates. According to media sources, FLC Chairmain Trinh Van Quyet said at a recent general shareholders meeting that the joint venture will be developing a 6.4-ha development land plot in Dai Mo Ward, Nam Tu Liem District, Hanoi.
Recently there have been investigations by Vietnamese authorities aiming at real estate projects that were allocated inefficiently in the past, either not through formal bidding process or sold at cheaper price than market price. The authority’s drive to clamp down on corruption might have some impact for business profits in the short term as some real estate projects are put on hold for investigation, which might potentially lead to temporary short-fall of projects readily available to invest. However, we expect that ultimately it would help the sector overall as transparency would improve, ensuring fair practices in the market and boosting both foreign and investors’ confidence to invest in Vietnam’s real estate sector.
With “clean” and “clear” land bank for residential and commercial projects are harder to find in the CBD or in well-known areas in the city, JLL observes a number of investors and developers looking to expand their footprint towards other neighboring provinces. Notable developers include Novaland with their Aqua City township project in Long Hung, Dong Nai Province, Nam Long with Dong Nai Waterfront and their last year’s acquisition of Dai Phuoc Paragon, a 45-ha township located in Dai Phuoc Island, Nhon Trach, Dong Nai Province. Although there are a number of new developers and investors who are looking at these emerging areas, we note that the majority is still dominated by local or foreign groups who have been long-established in Vietnam.
As US-China trade tensions escalated recently, the trend of manufacturing shifting away from China to the Southeast Asia region will continue to benefit the whole region, including Vietnam. There is a continued strong interest in industrial and logistics assets with both incumbent and new investors are actively looking through joint ventures with local industrial developers and/or acquisition of land bank and operating assets. The lack of high specification, modern logistics warehouse space, and strong demand from regional occupiers are supporting the potential growth of this industry. Quality of the assets, rental growth, deal size and remaining land tenure are the key crucial factors for investors to determine their investment decisions.
We expect foreign investors to continue showing their keen interest and strong commitment in Vietnamese real estate market, and that the market still has the potential for growth. Although the
M&A activities might potentially occur at slower pace and lower frequencies in remaining two quarters due to lack of “clean” and “clear” projects readily available to invest, we forecast that the current investigation would ultimately improve transparency in the market. This would ensure Vietnam’s competitiveness and attract even more investors from the region.
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