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Foreign investors eye property market   2011-09-03 - SGT

Many foreign investors study opportunities of investing in real estate, and some buy into property projects developed by local companies

More local property developers dispose of their projects when they lack capital and can hardly sell products due to the market depression since 2008.

Marc Townsend, chief executive officer of CB Richard Ellis (Vietnam), said many foreign investors are aiming at investment opportunities in Asia, where Vietnam is step by step becoming an attractive destination. South Korean investors have returned since their departure in 2008. Some investors from Russia and China have also consulted his company about opportunities to invest in building office and apartment buildings in Vietnam.

A representative of Sai Gon Thuong Tin Real Estate Joint Stock Co. (Sacomreal) said in the first six months of this year, some foreign investment funds had worked with the company on cooperation opportunities. Among them, Mapletree Investments, a subsidiary of Temasek Holdings Group of Singapore, mulled over office and apartment tower projects; Sung Chang Co. from South Korea was interested in retail projects; and the real estate investment fund EngelInvest from Israel studied the Vietnamese market.

According to Marc Townsend, high population density and profitability from property projects in Vietnam are attractions to foreign investors though there are challenges here.

Tightened property loans and the money supply have become big pressures for many developers. Besides extending the progress of projects, many companies had to sell some, withdraw capital from other projects or sell products at cost prices or even lower to maintain their business. Many companies cannot acquire credit loans, so they get access to capital sources by seeking opportunities to form a venture with local and foreign investors.

Su Ngoc Khuong, research department director of Savills Vietnam, said many local property developers are consulting his company about access to foreign investors. Compared with 2010, project transfer consultancy orders for Savills Vietnam this year have increased more than 20%. The majority of investors from Asia such as Japan, South Korea and Singapore are determined to invest in this market because of cultural similarities and their understanding of local business practices. Foreign investors are interested in office and apartment building as well as villa projects.

According to Khuong, excepting companies listed on the stock exchange, investors seldom announce information on project transfers, so covered transactions are common. A deal often lasts from six months to one or two years. For instance, Jones Lang LaSalle Vietnam needed more than one year to settle the deal for transferring the Centre Point office building on Nguyen Van Troi Street, Phu Nhuan District, HCM City, between Refico—the project developer, and Japan Asia Vietnam, a Japanese real estate investment fund.

Khuong said Savills is carrying out many deals in one of which it brokers the transfer of a commercial-office-residential complex worth US$120 million in HCM City. The deal is expected to be completed by the end of this year. Earlier, the company had succeeded in brokering the transfer of an office building project worth about US$100 million in Hanoi.

Joining hands to survive

While newcomers explore the market prudently, old foreign investors who have been familiar with the Vietnamese market are expanding their portfolios through buying up projects.

In May, the Singapore real estate group CapitaLand bought a 70% stake in the apartment project in Binh Trung Dong Ward, District 2, HCM City, from Khang Dien Saigon, an affiliate of Khang Dien Investment and Housing Co. The project, which has 974 apartments and is capitalized at US$70 million, covers more than 2.9 hectares.

Two weeks later, this group continued to buy a 65% stake in QuocCuong Sai Gon Co.’s apartment project in Binh Chanh District, HCM City, for more than VND121 billion (US$5.8 million). The project to build 800 apartments requires an investment capital of nearly VND906 billion and covers about 9,000 square meters.

Yip Hoong Mun, chief representative of CapitaLand Vietnam, said current difficulties are opportunities for investors and his company continues to seek cooperation opportunities with owners of feasible apartment projects.

Le Hoang Chau, chairman of HCM City Real Estate Association, said the mergers and acquisitions of projects will go on. According to him, this is good for the market when investors must associate with each other to strengthen their financial ability to implement projects, or else they can hardly survive on the market.

Market observers said apart from capital, the cooperation with foreign investors is beneficial thanks to the trademarks, project management experiences and customers foreign partners will bring along. Not all property projects, they said, cause a loss when being transferred. For instance, Sacomreal made a profit of hundreds of billions of dong when selling 60% of its shares in the Celadon City residential project with 7,000 apartments in Tan Phu District, HCM City, to Gamuda Land, a company of Malaysia.

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