Vietnam Has Strong Footing Regionally for Real Estate

"All the macro considerations place Vietnam on a strong footing regionally for Real Estate,” said Ben Gray MRICS, Director of Capital Markets at Cushman & Wakefield to Vietnam Business Forum, in an interview on the prospects of Vietnam Real Estate. Giang Tu reports.

Could you please comment on the real estate M&A market in Vietnam in the first half of 2016?

We are predicting that the US$4.3 billion benchmark in 2015 will be easily broken this year, as the twin factors of cheap regional debt and an ever improving regulatory landscape combines to improve the flow of cross border capital into Vietnam.

As more free trade agreements are agreed, the EU, TPP and the Korean free trade agreements all coming to mind, we feel that there shall be a considerable increase in the volume of capital pushing valuations for strong Vietnamese companies and projects. Masan is an excellent example with their US$1.1 billion deal made with Boon Rawd Thailand at the beginning of the year.

In Real Estate 2016 we have seen around 10 M&A transactions closed with a combined value over US$1.7 billion, Japanese groups have led the way with 5 deals completed. All combined year to date, this places Vietnamese Real Estate M&A value in amongst APAC’s top 10.

What is your forecast for the second half of 2016? Will there be any sudden change?

The ratification of the free trade agreements will increase interest into Vietnam over the year. The fundamentals of this market are exceptional, with 60 per cent of the population under the age of 35 years’ old which is getting interest regionally in the domestic FMCG sector. Asian Economic Community AEC anticipation in late 2015 had APAC investors flocking to Vietnam and in this year we have seen Nguyen Kim and Central group do a deal reflecting a 49 per cent equity transfer and AEON acquired 30 per cent of Fivmart & 49 per cent of Citymart. Vingroup are never slow in the market and they have acquired 80 per cent of Giang Vo Exhibition Centre.

Regionally investors in real estate are seeking stabilized income producing assets to acquire in Vietnam. They continue to look to improve their portfolio returns and this is translating into increased interest into core product; office, retail, industrial and hospitality. Those investors with more appetite for risk are now looking at developers with good pipelines, land-banks and track record and who are able to consider both debt and equity capital placements at project and corporate level.

What benefit does the market enjoy from real estate M&A deals?

A further improvement in the regulatory landscape will see an increase in Real Estate led M&A transactions in Vietnam, benefiting the market by providing capital and expertise to enterprises engaged in development or investment. The result of this improvement is increased market liquidity, transparency, and improvement in the end product provided to buyers and occupiers.

What are your thoughts on a trend in which many enterprises not specialising in real estate have moved into the sector?

For operators that look to target a real estate specialist company for acquisition, there has to be an obvious synergy between the two businesses or a need to move into the sphere that the target companies operate in.

For example, a developer acquiring a Broker and management company, a Retail operator acquiring a facilities management company, or a developer acquiring a developer who specialises a different market sector.

If the two businesses support each other and there is value add, then it is of benefit to the market. If they don’t then it is of no benefit to the market.

Is this a good time for them to boost investments in the real estate sector?

Yes, there are opportunities within the real estate sector based on a targeted knowledgeable approach to the market and its operators.

All the macro considerations place Vietnam on a strong footing regionally for Real Estate and the head winds being felt in APAC are already equating to a renewed interest in our market, where the fundamentals are very strong.

The right operators who have a need to move into real estate will be well positioned to improve on their market share and profitability in the short and midterm.

What do you think about the opinion that the M&A seems preference of most investors not specialising in real estate?

If the buyers need to get exposure to real estate, then it is the clearest route to secure the benefits that the target company can bring to them.

Be it acquiring an asset held by a SPV, or by buying into a new business line to increase market share and secure greater traction in Vietnam.

Many enterprises failed to invest in real estate and have to focus on core business. So what is the most important factor, for an enterprise not specialising in real estate, to succeed?

Real Estate is highly specialised & complex industry- at a very basic level, understand why you are targeting this sector, then look at the target company’s business fundamentals; its strengths, weaknesses, it market segment, its pipeline, track record and growth prospects.

Consider carefully their existing management and consider the level of control and capital needed to secure the benefits or returns you require from the target company.

Take the advice of a 3rd party real estate specialists as a core element of your DD. These specialists need to be from outside of the usual legal and financial considerations. 

Listen to the advice of your Real Estate Specialists before committing to the target company.

What do you predict about the trend in Vietnam’s market in coming years?

It will continue to prosper, with the real estate sector becoming more and more specialized as the market becomes more sophisticated. This specialization will in turn lead to an increase in M&A Real Estate transactions as companies look to expand into new sectors or to improve their market share. 

Source: vccinews