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M&A - Real Estate Industry of Vietnam in 2023 and Predictions

posted 5 months ago

1.          Overview of the Vietnamese Real Estate Market in 2023

In 2023, Vietnam faced a challenging global economic landscape characterized by inflation, high capital costs, financial market instability, and weakened demand. This put significant pressure on business financial outcomes and liquidity. However, these circumstances also created a favorable environment for increased M&A activities. This attracted foreign investors with robust capital who were seeking investment opportunities, particularly in Vietnam’s real estate sector.

EY Parthenon announced that within the first seven months of 2023, the total value of Mergers and Acquisitions (M&A) deals involving businesses and assets in Vietnam’s real estate sector reached approximately 1.4 billion USD. Notably, M&A transactions within the industrial zone alone made up 16 out of the 24 deals, totalling 874 million USD. Over 92% of the buyers were foreign investors, predominantly from China, Singapore, and South Korea.

For instance, in early March 2023, Frasers Property Vietnam, a subsidiary of Singapore-based Frasers Centrepoint Limited, announced a partnership with the diversified investment company Gelex Group. The goal of this collaboration is to develop an industrial real estate investment portfolio. The initial investment capital is expected to be nearly 6,000 billion VND, equivalent to approximately 250 million USD.


In addition, during the same period in 2023, the industrial real estate sector witnessed several transactions of a smaller scale. Hon Hai Precision, for instance, acquired land in the Quang Chau Industrial Zone with a transaction value of 60 million USD. Phat Dat Real also purchased a 31.8% stake in Phat Dat Industrial for a transaction value of 27 million USD, along with various other investment projects. Looking ahead, the industrial real estate sector is anticipated to continue its positive growth trajectory, driven by abundant FDI capital, as discussed during the Industrial Real Estate Forum in Vietnam at the end of October 2023 by the Ministry of Planning & Investment.

Mergers and Acquisitions in Commercial Real Estate, including offices, shopping centers, hotels, restaurants, and other commercial projects:


In contrast to the optimistic situation in the industrial real estate sector, the repercussions of the COVID-19 pandemic, coupled with unfavourable bank interest rates and the financial constraints faced by many investors, have significantly impacted the real estate market in Vietnam as a whole, particularly the commercial real estate sector. Consequently, transactions related to commercial real estate have experienced a slowdown in pace compared to the peak years of the market in 2017-2018, owing to challenging factors such as the pandemic and financial difficulties faced by investors.


However, the resort real estate sector is considered to have significant development potential as tourism gradually rebounds, and there is a growing demand for travel and leisure from both domestic and international tourists. One notable transaction related to resort real estate involves Ecopark Group, currently in negotiations to acquire Song Thao Limited Company, the developer of a hot springs resort in Thanh Thuy district. Additionally, many other hotel owners in Vietnam are also willing to sell assets to restructure their business operations amid the turbulent real estate market and the scarcity of capital, creating favorable conditions for the advancement of various M&A deals.


For instance, leveraging its extensive experience and top-notch service quality in Vietnam, Khang Dien Group has earned trust from Keppel Land Vietnam. In February 2023, the two entities formalized their collaboration by signing a memorandum of understanding, marking the partnership for the development of residential projects and sustainable urban areas in Ho Chi Minh City.


Additionally, office spaces and shopping centers are also facing significant challenges due to the ongoing global economic uncertainties. In the realm of office properties, the demand for new leases and office space expansion has somewhat slowed down. Shopping centers are also struggling to maintain customer traffic as consumers limit their spending during this period of global economic downturn.


Mergers and Acquisitions in Residential Real Estate:


In the housing segment, following periods of robust growth and the downturn of many domestic real estate businesses, numerous projects have been put on hold. The primary cause is the impact of Covid-19, leading to prolonged reviews of real estate projects over several years and increased scrutiny of credit quality in this sector. Particularly, local developers actively raising capital through corporate bonds have faced considerable difficulties due to tightened credit conditions. Consequently, from the early months of this year, there has been a growing trend of selling distressed assets by domestic real estate companies or seeking financial partners. This has created opportunities for financially capable enterprises to step in, acquire, and take over key projects.


This is an opportune moment for retirement funds, insurance capital funds, and sovereign wealth funds from Europe, North America, and the Asia-Pacific region to explore residential projects in Vietnam, where the capital market predominantly favours domestic ownership.


  1.         Prominent Real Estate M&A Deals


On 01 June 2022, Nova Corporation Real Estate Investment Joint Stock Company (Novaland), a member of the NovaGroup ecosystem and one of the companies with the largest market capitalization listed on the Ho Chi Minh City Stock Exchange, received a $250 million investment from an investment fund group led by Warburg Pincus.


Another notable transaction involves Gamuda Land, which has completed three real estate M&A deals in 2023. In July 2023, Gamuda Land Nam Viet Investment Co. Ltd, a subsidiary of Gamuda Berhad Malaysia, spent approximately $316 million (around 7.2 trillion VND) to acquire a 98% stake in Tam Luc Real Estate Joint Stock Company. With this acquisition, Gamuda now owns The Riverdale commercial project, covering an area of 3.7 hectares, located in An Phu Ward, Thu Duc City (now renamed Eaton Park). This deal serves as a positive momentum for foreign investors entering the Vietnamese market through the presence of Gamuda Berhad Malaysia.


The main driving force for real estate comes from the continuous increase in demand for office and industrial properties. The recovery of consumer confidence and spending, driven by a growing population, an expanding middle class, and rapid urbanization, contributes significantly. Furthermore, the recent passage of the Land Law during the extraordinary National Assembly session in January, with specific regulations on land use history and land origin for implementing commercial projects and planning new projects, is expected to expedite legal procedures, shorten project implementation timelines, and improve market supply. Thanks to these factors, real estate M&A activities are likely to continue occurring with increasing frequency and scale.


  1.         Growth Opportunities for M&A in Emerging Real Estate


Mergers and Acquisitions in Green Real Estate:


Green real estate refers to eco-friendly properties that aim to mitigate environmental harm throughout their formation and use. Projects meeting specific “green” standards are classified as green real estate.


Currently, Vietnam adheres to various green standards such as LEED (U.S.), EDGE (International Finance Corporation), U.S. Green Building Council (USGBC), and more. This trend originated in the 1990s in developed countries and has since proliferated worldwide. In Vietnam, this trend has gained traction in recent years, driven by the country’s high air pollution levels, surpassing the World Health Organization’s air quality standards. Therefore, green real estate serves as a means to minimize the negative impact of these environmental factors and achieve sustainability goals. Focusing on constructing and investing in green projects has become the next destination for both domestic and international corporations in Vietnam.


One notable green real estate project is Ecohome 3, which has earned the EDGE green certification from the International Finance Corporation, and Diamond Lotus Riverside, which has achieved LEED certification.


Mergers and Acquisitions in Warehouse Real Estate:


The logistics industry has experienced robust growth thanks to the rise of e-commerce. It is estimated that the e-commerce revenue in Vietnam will reach $20.5 billion in 2023, accounting for approximately 8% of the total retail sales of goods and consumer services nationwide. The positive prospects of the e-commerce sector and the increasing demand for fast delivery are promising indicators for the development of the logistics real estate market.


Mergers and Acquisitions in Social Housing Real Estate:


The substantial increase in the supply of social housing in the coming years will address the housing needs for a large number of low-income urban residents and industrial zone workers. The entry of Minh Phu Seafood Corporation into the social housing project business, with a scale of 17.67 hectares and a total investment of nearly VND 632.8 billion, marks the first steps in the development of this sector.


In conclusion, the real estate sector in Vietnam continues to be dynamic, with various opportunities and challenges across different segments. The M&A landscape is evolving, driven by economic conditions, global trends, and specific factors within the Vietnamese market. Investors and businesses need to carefully navigate this landscape to identify strategic opportunities for growth and consolidation.


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