Many challenges for foreign investors when hunting for real estate projects in Vietnam

According to data from RCA and Cushman & Wakefield, real estate investment and M&A transactions will still take place in 2023, but the number and total value will be smaller than last year. Of which, the total transaction value in the first 9 months of the year reached 729 million USD, down 33% compared to the same period last year, due to the lack of large-value deals. Foreign investors still account for the majority of real estate transactions, acquisitions and investments, while domestic investors account for less than 10% of the number of transactions.

However, foreign investors are facing many challenges when hunting for real estate projects in Vietnam. Cushman & Wakefield experts said that although the economy is slowing down and many assets are being divested, the project portfolio for foreign investors to invest in is not much. The reason is legal problems, especially the legal completion of the project, the difference in price expectations from both sides and the compensation process.

On the buyer side, the main obstacle is finding good opportunities with stable income streams. Investors looking for development cooperation opportunities also spend a lot of time researching suitable strategies and expected values. Another challenge is that most real estate offered on the market is often not widely and officially announced, so access to good assets is very limited.

Mr. Neil MacGregor, CEO of Savills Vietnam, also said that foreign investors in Vietnam are facing major challenges in administrative procedures, especially in the settlement of land use fees. While the settlement of land use fees and the approval of 1/500 planning are the most important factors for projects. Currently, there are few projects with complete legal documents, causing a shortage of credit because banks have difficulty in reviewing mortgaged assets before lending.

Savills Vietnam CEO said that M&A transactions will continue to be difficult until there is a clear change in the settlement of land use fees and the issuance of land use right certificates. For example, condotel products, although the legal framework has clear explanations, the management agency is still hesitant to issue certificates.

If legal issues are resolved, real estate M&A activities are expected to boom in the next two to three years. Ms. Trang Bui, General Director of Cushman & Wakefield Vietnam, said that Vietnam is still an emerging market attracting investment in the context of many fluctuations in the global economy. The important factor in foreign investors' investment or M&A decisions in Vietnam is the attractive rate of return.

During the period from 2018 to the first 9 months of 2023, the total investment capital and real estate M&A in Vietnam reached about 4.2 billion USD, led by the housing and industrial types, accounting for 46% and 28% respectively, according to data from RCA and Cushman & Wakefield. This shows that foreign investors' appetite is still focused on real estate serving the need to "settle down and work".

Mr. Neil MacGregor also said that Vietnam has many advantages to attract investment from countries such as Singapore, South Korea, Thailand, Malaysia, and Japan. The advantages include a large population, developed infrastructure and urbanization, abundant foreign direct investment (FDI) and a rapidly growing middle class. In particular, the industrial sector will benefit from many free trade agreements (FTAs) that promote diversified investment in manufacturing and industrial real estate.

In addition, domestic enterprises also bring great investment opportunities to foreign investors such as widespread facilities and supporting industries. This helps foreign investors to expand quickly when entering the market.

Experts believe that this is the right time for businesses to increase their acquisition or cooperation activities, especially those with strong financial potential. Cushman & Wakefield predicts that the 2024-2026 period will see a large amount of foreign capital completed and poured into the Vietnamese real estate market. The investment goal is still to find clean, good quality land with complete legal documents and development potential.