Real estate M&A set to surge amid market downturn

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Vietnam will see the number of merger and acquisition deals in real estate rising as the market is critically short of capital, real estate service provider Savills said.

Given that the Vietnam real estate market is now in a downturn, caused by constrained bank financing, Savills expected to see more M&A transactions in the property sector over the next 12 months, the UK-based company said last week.

Neil MacGregor, Deputy Managing Director of Savills Vietnam, said developers in Vietnam are seeking new sources of finance.

"There are a number of options open to developers requiring capital to move their projects forward, none of which necessarily require financing from banks, if the right partner can be found," MacGregor said. The options include outright project sales, en bloc sales of residential units or seeking a joint venture partner, he added.

According to Savills, many Vietnamese developers continue to hold large land banks and they can sell development land to third parties to raise capital.

Vietnam has tightened lending to the real estate sector this year, making it difficult for property firms to finance their projects. Credit restrictions also affect homebuyers, causing sales to fall sharply and housing stock to grow.

The Ministry of Construction, however, said earlier this month that the prospects for the real estate market are positive in the long-term because housing demand will continue to grow at a fast pace through 2020.

MacGregor of Savills said while the lack of bank finance is troublesome for many in the industry, it also creates "an unprecedented period of opportunity for others, particularly those with cash."

"Although facing a number of challenges such as an immature legal framework, low market transparency, complicated licensing procedures and differences in price expectations, it is believed that the next few years will see a rising number of M&A deals happening," he said.

According to Savills Vietnam, M&A in real estate is witnessing a rapid growth worldwide. Asia Pacific in particular saw deal value increase from $12 billion in 2009 to $22.7 billion last year.

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