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There are many benefits of expanding into overseas markets. In addition to comparably stable profit margins, there exist factors that drive more demand from domestic firms, such as quick project execution time, high project quality, low interest rates and market stability, Hoang Nguyet Minh, Associate Director, Savills Hanoi said.
The most obvious benefits of offshore investment include assisting domestic real estate businesses to diversify their portfolios, increase cooperation opportunities with a broader business network, and seek new investment potential, she said.
“Offshore investment may not achieve as high a return on investment (ROI) as in Vietnam, but in many markets, especially developed countries, investors can be assured of more stable returns," Minh said in Savills Vietnam's statement released on February 12.
"Several overseas investments by Vietnamese groups have demonstrated some success, with stable returns, improved knowledge of international standards in portfolio management, creating trust from international investment partners and most importantly promoting Vietnam on the investment world map,” she said.
Neil MacGregor, Managing Director, Savills Vietnam said whilst foreign investors have been actively pursuing investments in Vietnam itself for many years, some of these same investors are now seeking Vietnamese partners in their projects elsewhere.
"Although still not significant in the number of projects we are seeing approaches from a more diversified range of projects, ranging from hotels, offices and residential to education and healthcare,” he said.
However, offshore investment still carries a lot of risks, the majority of which are due to differences and discrepancies in cultural norms and legal systems, according to Savills Vietnam.
It is important that investors seek local professional advice from real estate experts, lawyers and tax advisors. Investors should be clear on their investment strategy, target returns, investment horizon and understand potential future exit options.
The developed markets are much more competitive than the domestic market, so unless investors are well-prepared, they will be at a significant disadvantage.
To achieve successful investment in foreign markets, Minh said, the domestic real estate developers should conduct market research, including trading practices, consumer demand, market trends and future supply as well as how directly and indirectly competing projects affect the project.
Market research must also consider any delays in completing a transaction and obtaining an investment licence for a new project in the host country. If investing in a residential project, when to begin selling is the most important factor, as project delays can expose the investor to significant cyclical risks. However, for commercial projects, controlling long-term cash flow from 7-10 years makes it easier for investors to choose a reasonable time to divest, increase investment returns and minimise risks.
They need to understand the process and methods of investing in the host country. They must always seek advice from lawyers in the country of investment to ensure that there are no unnecessary legal risks.
They should also carefully consider the capital structure for the project to ensure project development as scheduled, she said.