While Vietnam's real estate market continues to "plunge” and many local investors are trying to find a way to get out, but by contrast it is drawing great attention from foreign investors. This signals a sharp trend of transaction and mergers and acquisitions (M & A) in the real estate sector in the future. Following is a report by the Vietnam Business Forum.

Ranked 2nd in attracting FDI inflows

According to the statistics of the Ministry of Planning and Investment, in the first eight months of 2013, Vietnam attracted over 12.63 billion USD of foreign direct investment (FDI), up 19.5 percent compared to the same period last year. Amongst the projects, there are 769 newly licensed with a total registered capital of over 7.4 billion USD (up 12.2 percent compared to the same period last year), and 297 applying to add more than 5.22 billion USD to their capital, up 31.7 percent.

Among the 47 countries and territories investing in Vietnam in 2013, Japan is still a top investor with total new and extended registered capital of 4.35 billion USD (up 34.5 percent of registered capital), followed by Singapore with 3.78 billion USD (up 29.9 percent), and Russia with 1.01 billion USD (up 8.1 percent).

Vietnam has 18 sectors attracting the FDI, particularly in the real estate market which is 2nd in the list with total newly and extended registered capital of 588.11 billion USD or 4.7 percent of the total registered capital. The processing industry and manufacturing are ranked at the top of the list. Cumulatively, on August 20, 2013, among other valid projects, the real estate market had a total of 400 projects and registered investment capital of 48.23 billion USD.

Commercial segment of real estate recovering

According to a representative of Vietnam Savills Real Estate Company, one of the reasons that the real estate market in Vietnam is attracting interest from foreign investors is the recovery of the economy. While the GDP growth impressively reached 5 percent and the inflation has been curbed, the interest rates have been adjusted down to 6-7 percent per year. In particular, in Ho Chi Minh City the remittances have reached approximately 1.9 billion USD, up 3 percent compared to the same period last year.

Along with the business supporting policies of the Government such as the corporate income tax cut, lower ceiling interest rate for short-term loans, 50 percent VAT off for transactions apartments with a floor area of less than 70 square metres and price less than 15 million per square metre. The 30 trillion VND credit package launched to solve the housing problem for low income people is also considered a move to "warm" market.

In the 400 property projects attracting a total registered FDI of 28.23 billion USD, Japan is the top investors in Vietnam's real estate market.

According to Neil MacGregor, Managing Director of Savills Vietnam, at a recent workshop to introduce opportunities to Japanese investors, the Japanese investors said that they are very interested in the Vietnam market and strongly confident it is a good investment for the medium and long terms.

Adam Bury, Deputy Director of Capital Market Division of the CBRE Vietnam, said that investors from Japan and South Korea are still interested in Vietnam and always looking for investment opportunities. The group is planning to buy existing assets as well as to capture development opportunities, particularly in urban areas. Taiwanese investors are also interested in the real estate market in Vietnam, especially in the the segments of the 3-star hotels, the Grade C offices and the international standard projects.

Experts said that Vietnam's real estate market has some advantages in comparison with others in the region. While the commercial segment of the world's real estate is still in the downtrend, the segment of Hanoi and Ho Chi Minh City shows signs of bottoming out and beginning to recover. This will gain advantages to attract capital inflows from foreign investors.

According to Phan Minh Tuan, the CEO of the Vietnam Construction Investment JSC, the group's demand for the real estate of Vietnam is great. The group investors primarily own office buildings and use those as the headquarters for the companies and their businesses. Meanwhile, investors and investment funds want to participate in categories like hotels, resorts, and some areas for the purposes of building industrial parks and attracting foreign businesses to invest, produce or rent. These projects' potential for stable cash flows always draw great attention of the investors.

Vietnam is still a developing country with a young population and high population density. Besides that, the stable political system is considered a key factor to attract investment foreign investors and moreover, there are many investment opportunities in the real estate market. "This will help boost the effectiveness of M&A activities in the real estate sector", said MacGregor.-VNA