Real Estate M&A Deals Hindered By Bad Debts

Capital keeps flowing into real estate projects

A report from the Foreign Investment Agency (FIA) said that by January 20, foreign investors had poured $53.2 billion into Vietnam’s real estate market. In February, $300 million worth of foreign capital was injected. 

Dang Xuan Minh, CEO of AVM Vietnam & Vietnam M&A Forum, said the total value of the M&A deals in the real estate market in 2017 reached $2 billion. The figure is expected to be equal or higher in 2018 as current conditions are favorable for M&A activities.

Most recently, Warbug Pincus from the US cooperated with VinaCapital to set up a joint venture hotel capitalized at $300 million. 

Meanwhile, Mapletree from Singapore took over Kumho Asiana Plaza Saigon and Keppel Land established a joint venture to develop a land plot along the river in the Thu Thiem new urban area.

Nguyen Thi Van Khanh from Jones Lang Lasalle Vietnam said many foreign investors, especially from South Korea, Japan, Singapore, China and Taiwan, are eyeing the market.

CEO of Bizlight business school Bui Quang Tin said that foreign investment through M&A deals brings great opportunities to real estate developers who lack capital and want to find partners to implement their projects. 

However, he warned that there are barriers that may hinder M&A activities.

The bad debts in property loans have not decreased significantly, though debt is not as high compared with 2016. 

The HCMC Branch of the State Bank of Vietnam has reported that real estate loans amount to 10.8 percent of total outstanding loans of banks in HCMC. 

Of total outstanding loans of VND1,700 trillion by the end of 2017, real estate loans had reached VND198 trillion. The real figure may be even higher if counting loans disbursed as personal consumer loans.

Outstanding consumer loans in HCMC climbed to VND220 trillion, of which 28.7 percent, or VND63.14 trillion, were related to real estate.

The total real estate outstanding loans are estimated at VND261.14 trillion, an increase of VND15.14 trillion compared with 2016.

There is no official report about real estate bad debts, but analysts believe the figure is high. A number of real estate projects have been foreclosed by commercial banks and developers cannot pay debts that are due. 

These include the Van Hung Phat apartment project developed by Van Hung Phat Trade & Construction. Agribank Binh Chanh has issued a notice on auction of the project, which was mortgaged for a loan worth VND161.5 billion.

US$1=VND22,000

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Thanh Lich