Domestic developers could be the driving force in local property merger and acquisition deals this year.
While foreign developers had been the major players in the past, local firms looked set to take up the mantle, according to Phan Xuan Can, chairman of property consulting company SohoVietnam.
“Through discussions with current customers I’ve come to realise that strong financial domestic developers now have the most potential in terms of taking over real estate projects. Transaction procedures will be easier between domestic companies than those deals involving with foreign companies,” Can said.
He said foreign developers required more information than domestic companies, such as a clear legal database and a lack of obstacles on land clearance and compensation. While domestic companies were eyeing various types of real estate, foreign developers mostly paid attention to apartment sector. This was followed by trading centres, offices for lease and hotels, said Can. He added that foreign developers mostly acquired large scale projects of at least 1 hectare where they could develop mixed-use complexes.
In another report on property mergers and acquisitions (M&A), CBRE Vietnam said that during the first nine months of 2011, the total value of M&As in the real estate market reached $251 million, ranked third behind the total value of deals in the consumer goods and finance. “2012 is thus expected to be the year of M&A activities, through which the market’s competitiveness and liquidity is increased,” said the report.
“The dominant formula for transactions is domestic seller and foreign buyer. Yet, we still see great potential in transactions between foreign sellers and local buyers or even between two foreign parties,” it said.
M&A deals have taken off after three years of sluggish growth and in the wake of the government’s tightened credit policy which has left most developers without enough resources to continue their projects. They have, thus, been forced to sell some projects in their portfolios to execute others.
CBRE also advised developers to be prepared to face essential issues when considering M&A activities. This included avoiding the mentality of “to sell is to fail”, transparency, asking price, flexibility and controlled shares. “For many reasons, after making the decision to sell, the developers need to be prepared to capitalise on cooperation to make it a success.
After that, they should adjust the master plan (if needed), speed up the project, increase liquidity and contribute to future market development,” CBRE advised. Can said that in this market experienced developers and developers with strong finances will survive while the weak ones will be kicked out.
“In the next three years, the market will have a new face with only stronger developers left standing,” Can said.