Real estate mergers and acquisitions (M&A) are expected to be a good source of FDI in 2022. Our experts forecast that M&A activity is likely to increase in terms of frequency as well as value this year. While Viet Nam has enormous investment potential, foreign investors should be aware of the potential obstacles within M&A deals.
Viet Nam has an active M&A market. In 2021, real estate businesses received more than US$31 billion of registered FDI; however, disbursed capital decreased by US$1.6 billion year on year and reached US$2.6 billion.
The M&A outlook for 2022 is bright as Viet Nam is an increasingly attractive destination for international businesses. As borders reopened on 15 March and travellers from 13 countries are now allowed to enter Vietnam without a visa, M&A deals are likely to increase along with other real estate investments. The reason for this is that investors can now travel to properties and conduct market research, understand business models, or evaluate the potential of sites.
FDI Pull Factors
Two major “pull” factors make Viet Nam an attractive investment destination. Firstly, it offers investors favourable macro factors such as steady economic growth, political stability, improving infrastructure links, increasing urbanisation, and a large and young workforce. Secondly, the government also provides attractive support policies, such as tax incentives, to foreign investors.
On a macro level, Viet Nam has one of the fastest-growing economies in the APAC region. According to FocusEconomics, the country will have the fastest growing economy in the region in 2022, and this momentum is expected to continue into 2023.
The country’s infrastructure and transport networks provide links not only regionally through a growing road system but also international seaports, airports, and land borders. According to the Ministry of Planning and Investment, there are plans to launch the largest socio-economic development recovery plan the country has ever seen, with over VND 100 trillion dedicated to infrastructure development. This will increase the potential satellite provinces have to attract FDI enterprises. This is as improved transport links will allow these enterprises to expand further afield than established hubs like Ha Noi and Ho Chi Minh City
Demographics play an important role in attracting FDI businesses. In terms of manpower, Viet Nam has a large and young workforce coupled with competitive labour costs. With an increasingly urban population, there is also great potential for the development of new urban area projects.
The government plays an essential role in attracting FDI enterprises largely thanks to its supporting policies. During the pandemic, the government aimed to curb the impact of the pandemic and offered support such as facilitating the circulation of goods, debt restructuring, and tax extensions and exemptions.
Coupled with supportive economic policies, the government also ran a successful national vaccination campaign. It was so efficient that Viet Nam has one of the highest vaccination rates in the world, which plays a huge part in investor confidence and market recovery.
Ms Le Thi Phuong Lan, Head of Investment, Savills Ha Noi, shared: “In 2022 so far, we have seen encouraging M&A activities. Of the industries receiving investment, real estate ranked second and has received nearly US$1.52 billion, for 30.4%, of total registered FDI. These investments demonstrate that foreign investors remain bullish on developing real estate projects in Viet Nam.”
While Viet Nam has enormous investment potential, investors should be aware of some of the limitations within the market, which include legal barriers, difficulties with joint venture partners, uncertainty with the M&A process, and different pricing approaches.
Viet Nam has relatively complicated land laws. There are a plethora of inconsistencies between laws, which results in wasted time and money. Despite institutional reforms over the last few years, these shortcomings hinder M&A deals.
When doing business in Viet Nam, most foreign enterprises enter joint ventures. Within this model, the foreign enterprise holds the main decision-making power and the Vietnamese investors provide legal support. However, due to the differences in business practices and legal structures, negotiations may be time-consuming.
As M&A is a relatively new concept in Viet Nam, many businesses, especially small and medium enterprises, are not prepared for the processes involved. Large projects without specific divergence plans may struggle to attract investment or to transfer the project.
Finally, buyers and sellers often have different pricing approaches. There is often a difference between the price a developer expects and what the buyer is willing to pay, which could lead to challenging negotiations to find an agreed price.
Ms Lan added: “Although M&A deals are increasingly popular, there are still potential obstacles for foreign investors. M&A transactions are a complex commodity; therefore, the involved parties need to carefully research and develop detailed plans to ensure long-term value. With our own experience of entering into the Vietnamese market and aiding international clients, Savills understands the needs and concerns of FDI companies. Besides short-term profits, we aim to create long-term value within M&A deals."