Tourist realty lures US$1.8bln in Danang

Le Canh Duong, deputy director of the city's investment promotion centre, made this revelation at the Mergers and Acquisitions (M&A) Investment Opportunities Conference here last week, saying the 25 FDI projects in tourist real estate made up 54% of total FDI capital in the city.

Duong further revealed that the city attracted 305 FDI projects worth US$3.37 billion, of which 174, worth US$2.19 billion, were in the service sector.

The city has so far developed 16 tourist property projects consisting of 749 villas, of which 609 are for sale and 140 for lease.

"The city has called for investment in service and hi-tech industries as it envisions developing a hi-tech, environment and service city in 2020," Duong said.

"Some projects calling for investment in the service sector include the Han Market, health screening centre and logistics centre, as well as the support industries, commercial centre and retirement village," he added.

Jonathan Ooi, Pricewaterhouse Coopers Vietnam deputy director, said investors were becoming more open to making investments in Vietnam because of the political and economic stability achieved in the past few years.

"The economy is recovering quickly, with a stable GDP growth rate and inflation under control. The Vietnamese Government has made efforts to improve the banking system and privatise State-owned enterprises, and these are expected to stimulate M&A activities," Ooi added.

He also pointed out that domestic players needed to consider their M&A options such as logistics, retail and pharmacy, to meet the challenges in an increasingly open market.

"As of January 2014, totally foreign-invested enterprises (FIEs) are permitted to provide almost all types of logistics services in Vietnam, including storage and warehouse service, as well as freight transport agency service," Ooi explained.

"The Government also will remove all barriers to FIE retailers under its agreement with the World Trade Organisation while FIEs are allowed to set up operations, as well as import and export pharmaceutical products in the Vietnamese market," he added.

Ooi also raised the challenges for M&A in Vietnam in valuation, information preparation synergies and post deal integration.

"Unrealistic valuation leads to difficulty in reaching an agreement with potential investors, as well as a lack of a justifiable business projection and pre-deal preparations and arrangements to boost the selling price," he observed.

"Poor accounting records and weak tax compliance leads to a lack of investor confidence and further fall in prices due to increased financial risks," Ooi revealed.

Matthew Powell, Savills Hanoi director, noticed that Danang's total supply of hotel rooms in the first half of 2014 increased by 12 per cent year-on-year while average occupancy reached 66%, a 13% year-on-year increase.

He said the city was expecting the number of hotel rooms to increase in the future, with 31 of 45 projects expected to provide a collective capacity of 7,500 rooms.

Powell also observed that investors were now interested in M&A real estate transactions in Danang.

"Investors are expecting the resolution of land clearance and compensation issues, full payment of land use fees, clear shareholder structure and reliable domestic partners. They also eye operating assets in hotels and resorts, hotel management and development of beachfront sea-view and potential upside," he added.

According to Commercial Real Estate Service (CBRE) Vietnam, from 2011 to the first half of 2014, M&A property transactions, formerly rare, had increased, with 54 transactions worth US$1.5 billion, of which US$1 billion were in HCM City and US$362 million in Hanoi.

HCM City is still the leading market in number of transactions, with 55%, and value, with 67%.

Do Van Su, head of the foreign investment division under the Ministry of Planning and Investment, explained that the legal framework in Vietnam was either redundant or deficient.

"The legal framework in Vietnam is overlapping," Su noted. "Four laws on investment, enterprise, securities and competition, as well as a series of WTO regulations, control M&A."

"The legal framework has yet to address concerns on the integration of Vietnamese enterprises with foreign businesses following M&A transactions, as well as currency conversions in the securities market," Su said.

"Many questions have yet to be answered regarding the selling and concession project transaction related to assets, as well as the capital of a business after M&A," he added.

Le Minh Phuc, VinaCapital Danang general director, urged the city to dismantle barriers to M&A transactions.

Phuc said the time for M&A transactions in real estate between domestic investors and foreign buyers needed to be reduced from 12 months to four or six months to boost such transactions.

"The legal framework, regulations and procedure should be flexible and open to changes that are suited to these transactions. They require clear regulatory guidelines from the various departments of natural resources and environment, tax and construction to cut application time procedures for investors," he added.

Park Hee Hong, Korean Daewon Cantavil general director, revealed that his company has waited two years to find new joint venture partners.