M&A generates new capital source for developers

CA - Merger and acquisition (M&A) activity is seen as a channel for developers in dire need of capital to move their projects forward without calling for financing from banks if the right partner can be found, said an executive officer of Savills Vietnam.

Neil MacGregor, deputy managing director of the property services provider, told the Vietnam Real Estate and Construction Investment Forum in Hanoi on Friday that the M&A activity opened up new opportunities for cash-strapped developers.

The local real estate market was critically short of capital and developers were therefore seeking new sources of finance, MacGregor said at the gathering hosted by the Ministry of Planning and Investment in the capital city.

There are a number of options open to developers who are in need of capital to continue their project construction, besides loans from banks. These include an outright sale of the project to a third party, seeking a joint venture partner, wholesales of residential units, or strata sales of retail and office space.

MacGregor also said many local developers continued to hold large areas of land and were able to sell development land to third parties in order to raise capital to finance the construction of other projects.

He however cited figures researched by the company, saying that merger and acquisition in real estate is witnessing a rapid growth worldwide, nearly 24% between 2009 and 2010. In Asia Pacific, deal value increased from US$12 billion to nearly US$23 billion in 2010.

In Vietnam, real estate was one of the most active sectors in 2010 in terms of both transaction quantity and transaction value, he said, adding that in these transactions, Vietnamese investors and developers are more and more active as buyers, not just foreign players with large capital capacity as previously.

There are a number of challenges such as an immature legal framework, low market transparency, complicated licensing procedures and differences in price expectations. Nevertheless, M&A deals remains happening.

MacGregor attributed the market trend to the lack of bank finance causing trouble for many in the real estate industry. However, seen from other angles, it creates opportunities for others, particularly those with cash.

As the local real estate market is now in a downturn, caused by constrained bank financing, it is expect to see many more mergers and acquisitions in the real estate sector over the next 12 months, he projected.

Savills Vietnam has brokered for some projects in the country. Last year, the company successfully brokered a number of real estate deals, with total transaction value exceeding US$100 million.