M&As pave way for projects

Overseas developers are forming joint partnerships with local firms to avoid land clearance delays

According to Alex Crane, general director of Cushman & Wakefield Vietnam, foreign developers in particular are using mergers and acquisitions (M&As) and buying stakes to raise land funds. This has been the case for some time, given that the larger land banks are typically owned by Vietnamese companies. In many cases, joint ventures are the only real entry method for foreign investors.

“One of the challenges for foreign developers and investors, regardless of how well funded they are, is obtaining land, so it is natural that they would focus on joint ventures with local groups, the way Gaw Capital, Hongkong Land, and Keppel have done, for example,” Crane told VIR.

The number of M&A deals saw a dramatic increase in 2015, up 20 per cent from 2014, with the real estate sector accounting for 10 per cent of the country’s total foreign direct investment (FDI). The market is becoming more competitive with local and foreign groups vying for the best sites and investments.

“In 2016, the demand for properties will continue rising. Investors who hold land funds will have the greatest advantage,” Crane said.

Compensation and land clearance woes have been tormenting many foreign developers. For example, Hongkong Land, operating under the umbrella of Jardine Matheson Vietnam, decided to quit a project on prime real estate in Ho Chi Minh City after years of tracing.

Alain Cany, country chairman of Jardine Matheson Group, told VIR that even though the company worked very hard with the city authorities, the joint venture was unable to meet all of the terms and conditions.

“It is very hard for foreign companies to bear the increases in costs and delays on time related to the relocation of the households and the companies on site,” Cany explained.

After quitting this project, Hongkong Land co-operated with domestic developer Son Kim Land to develop The Nassim, a high-end residential project located in the heart of Thao Dien in the city’s district 2. With this investment, the two sides did not have to make clearances or pay compensation as the site was previously cleared and the project is currently on track to finish in 2018.

Many other developers are using M&As or purchasing stakes in other companies to begin new property projects.

Singapore’s Keppel Land Limited recently bought a 40 per cent equity interest in Empire City LLC, the developer of the $1.2 billion Empire City complex in the Thu Thiem New Urban Area in Ho Chi Minh City’s District 2.

The $93.9 million deal made Keppel Land the biggest shareholder in the joint venture, which involves two Vietnamese firms – Tien Phuoc Real Estate JSC and Tran Thai Real Estate Co. Ltd with a combined stake of 30 per cent. The Hong Kong real estate private equity fund Gaw Capital Partners also hold a 30 per cent stake.

Previous to this, Japan’s Creed Group and An Gia Investment, together with Phat Dat Real Estate Development Company (PDR), signed a deal to spend $500 million on River City, a project with 8,000 apartments plus retail outlets and other facilities in the city’s district 7. 

Sapphire JSC, under Australia’s Sakkara Group, is looking for medium- to large-scale property projects after its minority shareholding divestment from both Refico Real Estate Group and from its City Garden joint venture in the city.

Local enterprises have also been active in seeking more land. The Dream House’s management board has approved a plan to triple its investment capital by issuing individual stakes. With the issuance of 30.6 million shares, the company plans to increase its capital to VND490 billion ($22.27 million) to fund forthcoming projects.

In another case, Dat Xanh Real Estate Group has increased its stake in Agriculture Printing JSC to 99 per cent, equal to VND111 billion ($5 million). It has also taken over the development rights to Opal Tower, a condo-office-commercial centre complex in Ho Chi Minh City’s Thu Duc district.

Thu Duc Housing Development JSC will also partner with Foreign Trade Development & Investment Corp in a project in District 1 and a high-class residential area in the city’s Can Gio district. The company will also co-operate with Lien Phuong Garment and Textile JSC to construct Vinatex Building and Thu Duc House-Lien Phuong residential area.