Analyzing Vietnam’s Real Estate Boom: Insights and Trends

By Trang Le, Country Head, JLL Vietnam

A Shift in the Real Estate Landscape

Vietnam’s real estate sector is witnessing a notable turnaround this year, marked by the easing of administrative hurdles and enhanced legal clarity. This resurgence is not just a stroke of luck; it is the result of strategic innovations that have fostered cooperation among industry players, boosting market vitality and demand.

Mergers and Acquisitions: The New Growth Strategy

Amidst stringent financial conditions, many businesses have pivoted towards mergers and acquisitions (M&A) as a means of sustaining momentum. Notable domestic players such as Novaland Group and Phat Dat Group are increasingly active in the M&A scene, showcasing their agility in adapting to market demands. This strategic shift has become essential for firms aiming to expand their real estate portfolios while navigating the complexities of financial recovery.

Rising Foreign Investment

According to the National Statistics Office, the real estate sector absorbed $2.75 billion in foreign direct investment (FDI), accounting for nearly one-fifth of total FDI. Actual disbursements in the first ten months have reached $1.5 billion, emphasizing the sector’s attractiveness to foreign investors. The investment capital is primarily directed towards projects that boast high legal transparency, particularly those with approved planning and confirmed land use rights.

Investor Dynamics: Local vs. Foreign

There is a distinct stratification among investor groups in the market. Local investors predominantly engage in small and medium-sized transactions, while foreign partners are drawn to larger-scale investments, particularly in the high-end residential sector and integrated urban development. This dynamic creates a diverse market landscape characterized by varied strategies and investment focuses.

M&A Transaction Insights

JLL’s analysis from the first 11 months reveals that the cumulative transaction volume for M&As approximates $2.4 billion. This figure could be considerably higher when factoring in undisclosed transactions. A noteworthy trend is the residential sector’s dominance, accounting for over 70% of M&A transaction volume, while commercial and resort properties make up 17.7% and 5.3%, respectively.

The Role of Land Banking

With increasing demand for real estate, the concept of land banking has gained traction among investors. The scarcity of clean land, coupled with stringent legal procedures, has made land banking an attractive strategy for developers. This practice not only secures desirable property but also aligns with the evolving regulatory environment aimed at enhancing transparency.

Legal Policy Reforms: A Game Changer

Upcoming legal policy changes, particularly those allowing agreements on non-residential land use rights for commercial housing development starting April 2025, are set to unlock significant potential in the market. This shift will likely catalyze M&A activities in the housing sector, addressing a prolonged supply shortage alongside high absorption rates.

Market Segmentation: Office and Industrial Properties

The office rental market illustrates a clear distinction between localities. Ho Chi Minh City faces a severe supply crisis, driving high occupancy and rental growth, while Hanoi attracts substantial foreign investment. The hotel sector forecasts a promising investment yield of around 8-9% this year, with an estimated M&A transaction volume of $125 million.

Meanwhile, the industrial and logistics real estate segment continues to capture investor interest. The cumulative M&A transaction volume here reached approximately $74 million, with a growing preference for acquiring operational industrial parks equipped with infrastructure rather than starting from scratch. This method significantly minimizes legal risks and expedites project timelines.

Diversification in Investment Products

The evolution of diverse investment products, such as industrial land funds and ready-built factories, is generating ample M&A opportunities. Specialized sectors, including cold storage and data centres, are emerging as lucrative niches, further diversifying the real estate landscape.

Corporate Restructuring: A Necessity

A fundamental factor influencing M&A activity is corporate restructuring, particularly for firms grappling with liquidity challenges and mounting bad debts from the growth phase of 2020-2022. This necessity drives organizations toward M&A solutions as a way to stabilize their finances and comply with legal obligations.

Access to Capital: A Favorable Environment

The current monetary policy environment—characterized by lending rates averaging 7-9%—has created a conducive atmosphere for capital accessibility. This relatively lower interest rate not only promotes competitiveness between domestic and international investors but also provides an incentive for long-term investments in the real estate sector.

Recommendations for Vietnamese Businesses

In light of these developments, JLL offers several strategic recommendations for Vietnamese companies:

1. Legal Compliance: Priority should be placed on ensuring complete legal compliance regarding asset management, particularly concerning land use rights and permits.

2. Professional Valuation: Conducting valuations according to international standards and keeping them updated regularly is crucial.

3. Flexibility in Transactions: Businesses must remain adaptable in their transaction structures to explore various forms of cooperation.

4. Transparent Financial Systems: Establishing a transparent financial system supported by internationally audited reports and clear governance practices will accelerate successful M&A outcomes.

By addressing these essential elements, Vietnamese businesses can position themselves for sustained success in the evolving real estate landscape, thereby capitalizing on the myriad of opportunities ahead.