It is happening exactly the same as what property dealers have forecasted. This is the time many real estate companies are forced to sell their projects to restructure debts. And, this is also the time for taking assets at bargain prices.
A lot of real estate deals that have come to the public in recent times show that project trading is very vibrant though they are only the tip of the iceberg. Many companies are being forced to give up their once-golden projects that have taken them a lot of money and effort.
Recently, many successful deals were made public. For instance, Hanoi Electronics Corporation (Hanel) acquired 70 percent stake in a company owned by South Korea’s Daewoo Group that manages a 5-star hotel, office and apartment complex on Kim Ma Street, Hanoi City. CT Group bought into a golf course project in Nha Be district, Ho Chi Minh City from South Korea’s GS Engineering & Construction Company for US$24 million. This roughly 200-ha golf course cost US$42.6 million from the South Korean firm. Sao Sang Saigon Company, a member company of Nam A Bank, made a purchase of Peninsula property project in District 2, HCM City from JSM Indochina Investment Fund for about US$11 million. Hue Tourism Investment Company got hold of the 135-room Century Hotel in Hue City from Hong Kong’s Crowndale International Corporation. It is noted that these waves went against the previous forecast that foreign “sharks” would lay hands on property projects in Vietnam but Vietnamese companies were taking over foreign-invested ones.
The information about capital restructuring and business redirection by means of property project transfer is frequently heard at shareholder meetings. In mid-March 2012, Van Phat Hung - a famous property developer - informed its shareholders at the annual meeting that it planned to liquidate two land plots in District 2 and District 9, Ho Chi Minh City and even sell its working offices in District 7 to restructure capital sources. The firm was expected to take VND140 billion from this move. Simultaneously, it also planned to divest from member companies involved in real estate and securities businesses.
Mr Marc Townsend, Managing Director of CBRE Vietnam, previously forecast that real estate M&A deals would thrive in 2012 because the market was witnessing capital-thirsty deals. In a very long period of time, many companies jumped into real estate although they lacked experience and financial viability. At that time, if a company had a project, it found it easy to raise funds. When the market slumped, investors were unable to mobilise capital or sell. Meanwhile, banks tightened lending for property businesses and raised interest rates to as high as over 20 percent per annum, thus exhausting any companies. Many are considering selling or seeking business partners for their projects. For example, Hoa Binh Construction and Real Estate Corporation is planning to transfer its industrial zone, resort and tourist site projects. Hoa Sen Group hopes to hand over three real estate projects to return to its core business of steel business.
The demand for reselling real estate projects is very high when the market shows no clear sign of recovery, leading to softer offer prices. This is a good opportunity for investors.
Not only domestic investors see the opportunity of buying cheap projects but many foreign investors also show their interest in this field. Although FDI capital in real estate industry tends to decrease, e.g. only modest US$600 million in 2011 compared with US$10 billion over the previous year. But, this does not mean that this capital flow does not come back in the following year when some new investment funds appear together with new investors from the Middle East and Japan. Recently, TamaHome Group, a Japanese homebuilder with annual revenues of US$1.8 billion, signed a strategic cooperation agreement with Cotec Group, which is developing a number of property projects. Tama Global Investment Pte., a subsidiary of Japan’s Tama Home Group, will buy a 20 percent stake in Cotec Housing Development and Investment Joint Stock Company (Cotecland), a member of Cotec Group.
Some Asian investors with good knowledge of the Vietnamese market from South Korea and Singapore are also interested in buying cheap projects in Vietnam. Last year, Singapore’s CapitaLand took over three real estate projects, including one from Khang Dien House Trading and Investment Joint Stock Company and another from Quoc Cuong Gia Lai Joint Stock Company. The Ascott, a subsidiary of CapitaLand, also bought 90 percent stake in Somerset Central TD Haiphong.
Illiquid real estate market is forcing financially weak companies to sell their projects to restructure debts to live through this tough time. The market also shows new faces with abundant resources to buy into large projects worth tens of millions of US dollars. This is the buyers’ market (A market which has more sellers than buyers. Low prices result from this excess of supply over demand.) Besides, they are under pressure of keeping up with investment schedule because their projects are shared among secondary investors who contribute money to those projects.
The best scenario is M&A deals are concluded successfully. Investment projects are transferred to new owners with actual capability. The market will then have fresh flows of investment capital. If the situation worsens, projects are dumped because of no buyers. This bad scenario not only declares death to many companies but also causes bad impacts on the banking system and the entire economy.
Le Minh
Vietnamese
