While being too early to predict the near future for the real estate merger and acquisition (M&A) market, the sentiment from investors in 2018 was resoundingly positive. Most believe the market is firmly in mid-cycle, and the beginning of 2019 is so far showing this to be true, leading to the belief that Vietnam shall continue to enjoy success in the next two to three years.
Last year, GDP growth was strong at 7.08 per cent, inflation was steady at 2.8 per cent, and the Vietnamese dong remained competitive against the dollar despite rate hikes by the FED. This year promises to be successful, however early indications show a slight dip in GDP growth to 6.5 per cent.
Last year Vietnamese stock markets were turbulent, with the VN-Index taking only six weeks in April and May to erase yearly gains of 22 per cent. Fund managers noted that investors panicked and were selling despite the fundamentals of the market showing no change.
The outlook for 2019 is, however, quite bullish with average projections from a recent Bloomberg survey indicating that most managers believe the VN-Index will reach around 1,049 points this year. This, perhaps, suggests that storms have been weathered.
Cushman & Wakefield feel that the source of capital flowing into real estate shall continue to come from the Asia-Pacific region this year, with Japan and South Korea remaining the main players, and Singapore and Thailand continuing a strong commitment to invest as well.
It will be interesting to see if the involvement of the United States will increase after Warburg Pincus forged a partnership with Becamex at the beginning of 2018. Will this year be one of American private equity giants? It certainly feels like this will be the case.
Despite their economic growth slowing, China may start to play a more active role in the real estate M&A market as the year progresses.
Cushman & Wakefield are aware of a large volume of capital coming from Hong Kong over the second half of 2018, and this has led to our consensus that it is likely they will be more widely present in the market this year.
The fact that real estate M&A is the quickest and most effective way to gain exposure to the Vietnamese market is the continuing driver for investors into this space. There is speculation that the government intends to streamline and simplify licensing policies as well as undertake continued regulatory reform, which is a positive step. We are also looking forward to the new draft law on securities having its public consultation.
Whilst not impacting real estate directly, the proposed lifting of the foreign ownership limits of public companies will be welcomed and long overdue. That said, the proposed lock up of three years for strategic investors is a concern, and it would be preferable to move away from this and instead have the market self-regulate in a reasonable manner.
In 2019, the real estate M&A space will see deal-makers and investors remaining focused on the economic fundamentals of Vietnam rather than the potential for disruption from global trade.
Investors will need to be aware of valuations, as seller expectations are not in line with the market, as well as some sellers being over-optimistic about their projects and companies. Much like this year, investors in 2019 will continue to face challenges in the management and the accounting standards of some target companies.
We believe that while the likelihood of an M&A transaction being concluded after the diligence period is very low in Vietnam, we think that real estate will continue to outperform other sectors in regards to deals being closed.
To financiers considering both development and yielding assets: if you want to discover which asset classes will be hot this year, you will simply have to wait and see.
The story above originally appeared on Vietnam Investment Review on 6 March 2019.