Investors ready to spend $1 billion to acquire real estate projects

By Minh Thu - Jun 20, 2019 | 12:32 PM GMT+7

TheLEADERAs much as $1 billion is now ready to streamline into local real estate projects listed by property service provider Sohovietnam, according to its chairman Phan Xuan Can.

What kind of properties are your investors interested in for now?

Phan Xuan Can: Both foreign and domestic investors are craving for property projects featuring mixed-use developments and urban or residential areas with apartments, townhouses and villas that aim at serving the needs of homebuyers.

Office for rent is also another type of property that many investors have on their wish list. In the 2011-2014 period, when the economy of Vietnam bumped into difficulties, many businesses suffered losses or went bankrupt, there were thus no demand for them to expand offices. The number of newly established businesses was also small then and as a result there were very few office projects initiated during this time.

As the market has picked up its momentum since 2015, many businesses have desired to expand their office space. This, coupled with a strong wave of foreign investment in Vietnam, has given rise to the high demand of office-for-rent projects.

Office rental prices are at their peak at present. They have increased robustly in big cities like Hanoi and Ho Chi Minh City. According to CBRE, the average rental price for grade A offices in Ho Chi Minh City has gone up to $46.31 per square metre a month and the level for Grade B is $23.4 per square metre per month. The occupancy rate is rising across both segments. Office developers are now returning vigorously to the market.

$1 billion set to pour into local real estate projects
Sohovietnam chairman Phan Xuan Can has advised a dozen of M&A deals in the real estate market.

Hotel and resort developments are also on investors’ radar screen. Thanks to the tourism boom, tourist arrivals in Vietnam have increased sharply over the years, leading to a huge demand for hotel rooms.

Investments made in the hotel and resort segment in the past years, nevertheless, have focused on building and selling villas and condotels rather than traditional hotel rooms.

Investors are not interested in buying condotel or resort villa projects. They are however purchasing hotels located in tourist areas like Hanoi, Ho Chi Minh City, Danang, Nha Trang and Quang Ninh, as well as those around the industrial parks in Binh Duong and Dong Nai province.

A number of foreign investment funds from Europe, Japan, and Korea have been actively looking for existing hotels in prime locations to upgrade them into a hotel chain.

So for those that are looking at office buildings, are they buying them for their own use or for buy-to-let purpose?

Phan Xuan Can: For both purposes. They buy existing office buildings or land to build offices themselves, partially to use on their own and to rent out as part of their business.

Most investors who buy office projects have a sound financial back up. Investors are currently willing to spend about $87-130 million to buy existing office buildings. For those who buy land to build their company’s headquarters, the budget for purchase land alone has gone up to roughly $87 million.

The demand seems so great, yet the real estate transactions since the beginning of the year have been rather sluggish. So what is your take on this?

Phan Xuan Can: In big cities, it is extremely difficult to buy real estate assets like the Grade A and B office buildings, or 4- and 5-star hotels because the number of these projects is limited and the prices are too high. The high prices registered by sellers, meanwhile, have posed as the main obstacle in real estate transactions.

For those investors opting to buy land to build their own hotel projects, they have also faced another difficulty in terms of the shortage of land bank in big cities.

Meanwhile, one of the solutions to have the land bank available for real estate projects is through the build-transfer model, but it has been stopped. The equitisation and relocation of state-owned enterprises in a bid to clear up the land for real estate projects have also been delayed due to the government’s inspection and anti-corruption works.

Along with that, many projects in Hanoi, Ho Chi Minh City, Danang and Khanh Hoa have encountered troubles in terms of completing the necessary legal procedures or going through the inspection process, to be able to round up their transaction or transferring activities.

So does this mean that buyers would not be able to find sellers in this case?

Phan Xuan Can: For investors who are operating their real estate projects, some of them will not be selling these right now despite the high prices offered. Many of these investors are actually reaching their old age and they indeed want to pass on these properties to their next generation.

For other investors, their real estate assets are just like any other products ready to be traded or sold for a profit. As these investors tend to wait for the highest prices, the progress of negotiating may cause buyers many anxieties. It will only work out well between the two parties should the projects be located in prime areas and buyers are willing to pay a high price them.

There is another case in which investors would want to sell their real estate assets when the projects are not operating effectively. These projects would have normally been in business for a while already, but their investors feel that they are not capable of operating and managing the properties themselves, or simply they are under a financial pressure with a huge burden of debts to repay.

This would often be the case of projects in the hotel and resort segment. Over the past years, there have been a number of investors pouring money in this segment, yet without experience in the field, they could not make profit from these hotel and resort projects. Selling these to recover the losses has thus been the choice of those investors, in a bid to reinvest elsewhere more lucrative.

Would real estate transactions be affected by the tightened real estate credit regulated by the central bank?

Phan Xuan Can: Most investors with demand to buy real estate products seem to have a rather good cash flow to do so, thanks to their good performance in the prior period or stable profit-making schemes.

Given a sound financial resource as such and a good reputation in the industry, these investors would not likely be affected by the market volatility or the tightened capital flows from banks.

In contrast, those that are lack of capabilities or finance resources and do not have profitable business activities will face many troubles when banks tighten their lending to real estate firms. These businesses ought to restructure, transfer their properties or collaborate with other investors in a bid to bring their projects into reality.

Is there any legal hitch in the transferring activity of real estate projects at present?

Phan Xuan Can: The current regulations on the buy, sell and transfer activities of real estate projects are quite complicated. Accordingly, projects to be transferred must comply with Decree 76. This means that investors ought to have their structure frame set up, certificate of land use right and have paid the land use levy to be able to transfer their projects. Normally, should investors have completed all these aforementioned steps, they would not likely find any other troubles prompting them to sell the project.

Investors mainly bump into difficulties in the first phase when the projects have just had its land clearance done, the infrastructure incomplete, and land use levy unpaid. These, coupled with no land use right certificate issued and lack of necessary capital, will force project owners to resell or transfer their projects. Investors will often choose merger and acquisition (M&A) over transferring method for their properties to avoid the complex procedures.