Markets & Prices
Last updated: Tuesday, March 11, 2014
When Foreign Investors Dominate Real Estate MarketPosted: Tuesday, February 28, 2012
There are signs of loosening credit for the property market, but the effect so far is not strong enough to wake up the long hibernating capital market. Grayness still covers the real estate market in early 2012.
Because of lack of capital, some projects have been forced to sell off, and many others are considering it. Therefore, in the near future, some projects are going to be divested. However, this is good opportunity for foreign investors to affirm their fame and take part in the Vietnam real estate market by replacing divested projects with their own.
Acquisitions and mergers
When real estate market loses its liquidation for a long time, most of real estate projects have to suffer from the loss for paying interest, especially for luxurious apartment projects, liquidation capacity becomes unreachable. But in reality, customers mainly focus on products with price of below VND2 billion.
Because of the tightening credit policy promulgated by the State Bank of Vietnam, many real estate companies are in trouble with capital mobilisation, additionally, negative effects of global economic downturn, high inflation rate and intensively fluctuated construction costs become the extreme burden for real estate companies, which do not possess a strong financial power.
While many completed projects can not to be bought by any customer, many real estate companies tend to sell or transfer part or all of their projects to foreign investors. In fact, Cuoc Cuong Sai Gon Company became a specific example pursuing to sell 65 percent (equivalent to VND121.2 billion) to Capita Value Homes Company, a subsidiary of Capita Land Group. Furthermore, this company also buys many other projects form Vietnamese investors.
Besides that, the Japanese Tama Home Group also marked its appearance in buying 20 percent of shares of Cotec Investment and Land-house Development Joint-stock Company, a member of Cotec Group.
Whilst many Vietnamese real estate companies are distressed by the frozen real estate market, some foreign investors are still confident to invest in Vietnam market. Particularly, in 2011, Indochina Capital - one of the leading real estate investment funds of Vietnam with annual revenue of US$40 million committed to continuously invest in many projects of Vietnam in 2012.
Mr Peter Ryder - Chief Executive Officer of Indochina Capital believes that recent difficulties of Vietnamese real estate companies have become opportunity for further development of Indochina Capital. According to him, the range of market demands is still large, especially projects with right location and competitive price are still concerned by customers. Foreign investors also have the same point of view that after recently frozen period, Vietnam real estate market will become warmer and strongly develop.
Opportunity or risk?
With both of objective and subjective challenges, many real estate companies must make acquisition and merger even they may be stuck with some difficult matters, for example: legal framework is not tight enough, transparency of the market is not high, procedures are complicated...
However, regarding many real estate experts, many acquisitions and mergers were realised. Mr Nguyen Huu Cuong, Chairman of Ha Noi Real Estate Club said: “In order to see the overall picture of all acquisitions and mergers of real estate companies and, we have to wait until 2012 when old real estate companies will be took place by the new ones, then we can acknowledge how much it will be and what will be the names to be replaced.”
The opened outlet for domestic real estate companies will invisibly create a very bad and dangerous precedent for real estate market because of not only economic matters but also security factors. Mr Nguyen Huu Cuong said: “If domestic real estate companies cannot find the way to unify, some better off investment projects would be transferred to foreign investors. And this situation cannot be controlled, because we are in the integration process. In the next few years, what will happen if projects with prior location belong to foreign investors”
Accordingly, if companies do only care for themselves, they would not survive. The hardship will filter weak companies, but is it enough to build up the big domestic real estate groups, which are able to compete with foreign companies? Pursuing to some experts, domestic companies would rather unify and cooperate with each others to support resources among them than sell projects as retailers.