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Vietnam M&A Outlook 2013

A changing tide for the real estate market

Mr. Adam Bury
Associate Director, HCMC


After a few years of slowdown, the appetite for Vietnamese real estate appears to be growing again with interest turning into deals, writes Adam Bury, associate director, capital markets at
CBRE (Vietnam).

MACRO ECONOMY GIVING REASON FOR GROWING OPTIMISM
In 2013, GDP growth reaching 5.5 per cent, the falling inflation levels witnessed (now significantly below the crucial 10 per cent mark), and the exchange rate increasing from VND20,828 to VND21,036 have help provide stability for the foreign exchange market. Additionally, the Dong is showing far greater medium term stability than has previously been evident.

Vietnam has attracted a greater amount of FDI compared to 2012. The majority of FDI, $9.3 billion, has been poured into the processing and manufacturing industries. FDI into Vietnam, manufacturing in particular, is key given the relatively limited domestic investment that has been witnessed in the processing and manufacturing sector. It is imperative that supply chain industries are developed to serve such industries, in turn this will, ultimately, create wealth and thus demand for greater amounts of real estate.

GOVERNMENT INITIATIVES PROVIDING STIMULUS FOR THE MARKET
The first half of 2013 has seen the government become more proactive in reviving the Vietnamese economy, and most obviously the real estate market, as the passing of the Resolution 02/NQ-CP, under which the State Bank of Vietnam will provide soft loans worth VND9 trillion (approx. $428 million) for real estate companies developing low-cost homes or converting relatively higher-class developments to low-cost developments at a low annual rate of 6 per cent. And as a further part of the Resolution 02/NQ-CP, the National Assembly has approved to cut corporate income tax (CIT) from the current ratio of 25 per cent to 22 per cent, effective from January 1, 2014, and will further cut the rate to 20 per cent in 2016. Besides, government also established the Vietnam Asset Management Company (VAMC), to handle bad debts and mortgaged assets.

INVESTMENT MARKET SEES INCREASING LEVELS OF INTEREST
With confidence returning to the Vietnamese market, investment appetite for Vietnamese real estate appeared to be growing in the first half of 2013. CBRE has seen enquiries for investments increase 20–30 per cent on a year-on-year basis. Amongst these, old favourites Japan and Korea remain keen on Vietnam and are on the lookout for opportunities. Taiwanese investors are another potential source of capital for the Vietnamese investment market, especially when the opening of the Taiwanese insurance regulations has paved the way for them.

INVESTMENT INTEREST IS BEING CONVERTED INTO DEALS
Singaporean, Korean and Vietnamese investors accounted for the majority of investment activity in the first half of 2013. A number of hotel transactions have been witnessed, such as City Lotte Hotels & Resorts acquired the 70 per cent of the Legend Hotel, District 1, Ho Chi Minh, Minor International Public Company Limited (MINT) acquired Life Heritage Resort Hoi An and Life Resort Quy Nhon, etc.

HOW TO MAXIMISE THE CURRENT OPPORTUNITIES
Whilst the increase in investment enquiries and activities may sound like a silver lining to what has been a particularly grey cloud for some active within the market, it is worth remembering that the price at which an investor enters a project is key.

The price has declined; however, pricing remains the single biggest hurdle for investors looking into Vietnam. In addition to valuations, the three other major hurdles which domestic groups must overcome if they are to secure foreign investment are:
• Having a proven track record;
• Having structuring which is prudent and efficient;
• Providing transparency to incoming groups;

Whilst there will be an increase in investors coming to Vietnam in the second half of 2013, unless the above four points can be demonstrated, investors will be unlikely to invest and the momentum building within the market may again be lost.

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