Vietnam Real Estate Market

Vietnam's mergers and acquisitions (M&A) forecast in 2022 is promising due to rising international company investments as the country approaches a new normal. Investors must, however, arm themselves with accurate knowledge on the state of the Vietnam real estate market in order for these investments to pay off.

Due to its advantageous location, socio-political stability, and inexpensive yet skilled labor force, Vietnam real estate market has long been a popular investment destination for foreign investors. Particularly, the Vietnam real estate market has grown alongside the country's economic recovery following the COVID-19 epidemic and is anticipated to show brighter and more optimistic trends compared to 2021. Foreign investors who intend to enter the market must arm themselves with accurate and recent information in order to remain ahead and avoid unnecessary impediments as it progressively returns to the pre-pandemic trajectory.

Future trends in Vietnam real estate market

The Vietnam Report recently conducted a study of real estate companies, and the results revealed some significant trends for the industry going forward.

The COVID-19 outbreak has disrupted several industries, including the real estate industry, and accelerated the digitalization revolution. As a result, almost every aspect of the real estate sector will need to change in order to accommodate the impact of digitalization, including transactions, capital allocation, property management, virtual tours, and even consumption trends.

Future project planners must take into account the need for smart infrastructure. Customers these days tend to favor newer structures with superior ventilation systems and more adaptable floor plans with cutting-edge features like touch devices.

New, multi-purpose industrial park designs with synchronized utility systems will also gain popularity in the near future. In truth, companies are becoming more interested in green, clean workplaces and eco-industrial parks that don't interfere with business performance or the environment and reduce resource exploitation and environmental impact. Additionally, more environmentally friendly construction techniques are anticipated in 2022.

Potential industries in Vietnam Real Estate Market

The Vietnam industrial real estate market, notably the data center and logistics segment, land plot, and housing segment, are predicted to rise at a faster rate than the other areas of the real estate market. 2022 will also witness the recovery of the resort and commercial real estate, despite the fact that the bulk of resort real estate products still lack ownership certificates for secondary investors, preventing their exchange, purchase, or sale.

Industrial real estate

The Vietnam industrial real estate market is attractive to FDI enterprises, according to Mr. Matthew Powell, director of Savills Hanoi, because land prices are still relatively low, there are many reliable developers, and legal policies are reasonable, in addition to other factors like labor, traffic, and convenient import-export connections. Significant US and European businesses are looking for ways to enter the Vietnamese market, notably the industrial real estate industry, which is already oversaturated with high-quality investments, according to Savills Vietnam.

Office and Retail commercial market

After being severely hit by the COVID-19 pandemic during the previous two years, the office and retail commercial segment, in particular, begins to have many promising prospects as of 2022, especially in the setting of a new normal.

Rent increases in industries like data centers, e-commerce, and information technology are what fuel the office real estate market.

Along with a growth in spending and capital investment, the retail real estate market will also experience several beneficial developments.

Tourism real estate investment and business activities are governed by the fundamental legal framework applicable to real estate, tourism, and other related rules. This makes linked transactions more difficult as well as licensing ownership (the pink book for secondary investors). As of September 2021, there were roughly 100,000 tourist flats (condotels) that hadn't been certified in compliance with the land law, according to estimates from the Vietnam National Real Estate Association (VNREA).

The Vietnamese government is implementing changes to establish a more practical legal pathway in the real estate industry.

How can a foreign investor invest in a Vietnamese real estate venture?

Foreign investors typically have a more complicated incorporation process than domestic investors. Vietnam real estate market developments cannot be directly built or managed by offshore companies. Investments are only permissible if:

- Create a Vietnamese joint venture with a local partner or a wholly owned Vietnamese subsidiary (all of which are examples of foreign-invested enterprises); or

- Acquire stock or equity interests in an existing business that manages the real estate developments. An Investment Registration Certificate (IRC) and Enterprise Registration Certificate must be applied for by foreign investors who are making their first investment in Vietnam through the establishment of a foreign-invested enterprise (FIE) (ERC). Certain business sectors will be subject to industrial sub-licenses. Firms having any foreign investor as a shareholder are considered FIEs by law, and certain FIEs (those with more than 50% foreign ownership) will also be classified as foreign investors when making investments in other companies in terms of foreign investment limits and investment procedure.

Typical structure in Vietnam Real Estate Market

The first structure - Combination of asset and equity deal

The potential buyer will purchase secondary shares in the new company from the public company in cases where the public company directly engages in the real estate business by first establishing a new company, transferring real estate assets to the new company, and then selling real estate assets to the new company. If the prospective buyer is a foreign investor, the new business will turn into a FIE and acquire the previously mentioned restricted range of real estate business activities.

Because it is a private corporation, this structure enables a foreign investor to acquire the majority of that new company (not subject to the 50 per cent foreign ownership limitation like a public company). Potential buyers also favor this structure since it can help them avoid past risks, obligations, and the PTO process.

The second structure - Equity deal

When a public company serves as the parent company of a corporate group and conducts real estate operations indirectly through a number of subsidiaries, a potential buyer can directly purchase a controlling interest in the public company. In the case of a foreign potential buyer, the public company's registered business lines should be analyzed prior to the combination.. If any of them are on the list of business lines with restricted market access, these restricted business lines should be deleted in order to avoid the foreign ownership restriction.

With this setup, a publicly traded firm is able to maintain the corporate group's organizational structure as well as its licenses and permits. Additionally, in this arrangement, the public company will attempt to seek the shareholders' permission for the PTO waiver and the SSC's approval for the waiver of the trading band in order to reduce complexity.

The third structure - Asset deal

Since the assets will be directly owned and operated by the local potential buyer, they can immediately purchase the real estate assets from the public corporation.

Because a subsidiary must be established as a FIE, which is prohibited from purchasing real estate that is already up for sale or under lease, this structure cannot be employed in the case of a foreign potential buyer.

Conclusion

Following the COVID-19 epidemic, the economy of Vietnam has recovered with the real estate sector, and it is anticipated that this trend will continue through 2022 and beyond. However, international investors must arm themselves with the most recent knowledge and trends, as well as devise appropriate plans, in order to minimize risks, improve corporate efficiency, meet customer expectations, and maximize rewards. Modoho is confident in our abilities to offer advice and support to you in your future ventures in the Vietnam real estate market because we have many years of consulting experience. With us at your side, let your successful trip begin right away!