The real estate market has many incentives to attract foreign investment.

Real estate M&A faces many opportunities

The merger and acquisition (M&A) market in Vietnam in 2021 has witnessed impressive numbers. According to the Ministry of Construction, the real estate sector received more than US$31 billion of registered foreign investment capital. In which, the disbursed capital in 2021 is US$2.6 billion, down US$1.6 billion compared to 2020.

This shows that there are still many projects in the market that have not yet met the legal conditions for disbursement, partly due to communication restrictions during the pandemic.

However, the decision to open all routes from March 15 and the visa-free entry policy will accelerate the negotiation process of M&A deals and strengthen real estate investment activities.

This will lead to the disbursement of foreign direct investment (FDI) capital becoming more convenient when tourism barriers are removed, investors can directly move to projects to research the market, find out the business model or assess the potential of the industry. This contributes to an increase in the success rate of M&A transactions.

Thus, Vietnam's real estate industry is facing the opportunity to create momentum for M&A activities and become an attractive destination for international businesses in 2022.

Experts estimate that Vietnam possesses many macro factors, helping to create an attractive environment for foreign individuals and organizations to participate in investment activities.

In addition, the Government's plans to support businesses and control the pandemic have stabilized the economic situation and ensured social security. These are said to be two factors that build the confidence of FDI enterprises to pour investment capital into Vietnam.

For example, according to the Ministry of Planning and Investment, in early 2022, the Government officially approved the largest socio-economic recovery and development program ever, worth nearly VND350 trillion, in which, more than VND100 trillion is to develop infrastructure.

This acts as a “spillover” driving force, providing many opportunities for development in satellite areas. From there, FDI enterprises can expand their investment scale, instead of just concentrating in big centers like Hanoi and Ho Chi Minh City.

In addition, the timely support from the State plays a role in helping to strengthen the confidence of FDI enterprises when investing in Vietnam.

According to Le Thi Phuong Lan, Head of Investment Advisory Department, Savills Hanoi, entering the first months of 2022, Vietnam continues to record positive M&A activities. In particular, the real estate business ranked second in the whole industry when it received total registered investment capital of nearly US$1.52 billion, accounting for 30.4% of the market share.

"These figures have partly confirmed the needs and expectations of foreign enterprises in developing real estate projects in Vietnam," said Le Thi Phuong Lan.

Hidden barriers

However, along with opportunities and potential, M&A activities in Vietnam still have certain limit ations. This makes FDI enterprises more cautious, somewhat inhibiting the development of the M&A market.

First of all, the legal system on land in Vietnam is still relatively complicated, causing bottlenecks and waste that have not yet been resolved. Many provisions in the laws, such as the Law on Housing, the Law on Land and the Law on Real Estate Business, still have inconsistencies. Despite the government's institutional reform over the years, these shortcomings will be a factor hindering the development of M&A deals.

In terms of transaction structure, most FDI enterprises want to implement a joint venture structure. Under this model, they hold the main decision-making power and Vietnamese investors provide legal support for the project. However, due to the difference in business practices as well as the legal system, the negotiation between the two parties becomes time-consuming, and sometimes leads to conflicts in the post-M&A stage.

Because the M&A market is a relatively new concept in Vietnam, many businesses, especially SMEs, have not been prepared for this process. For enterprises that own large projects, they have not yet planned specifically for a reasonable divergence right from the project planning stage, leading to many difficulties in mobilizing investment capital or transfer.

Finally, buyers and sellers are taking different pricing approaches, creating differences in the expected price of the project. This leads to difficulties in negotiating to find a suitable price between the two parties.

“Having many advantages compared to other countries in the region, the M&A market in Vietnam still has many potential challenges for foreign investors. M&A transactions are a complex commodity, so the parties involved need to carefully study as well as make detailed plans to aim for long-term value in the future,” a representative of Savills said.

According to the assessment, although the real estate market possesses many incentives to attract foreign investment capital, remaining limit ations in the legal system, as well as the way businesses approach M&A, will limit  the ability to convert transactions.

This should be noted especially in the context that businesses with investment needs are allowed to move freely, this is a golden time for the market to keep the wave of trade moving into Vietnam.