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Real estate M&A forecast to heat up in the second half of the year

Real estate M&A forecast to heat up in the second half of the year

Friday 07, 06 2024
According to MBS Research, M&A activities in real estate projects will play a significant role in 2024 due to the ongoing weak financial health of many real estate companies, which are still struggling to access capital as project development costs continue to rise.

In a recent update report, the analysis department of MB Securities (MBS Research) suggests that capital raising on the stock market will be a prominent activity for real estate companies in the second half of 2024. This will help restructure debt, meet financial obligations related to land with the government, and manage rising project development costs.

MBS Research also expects that M&A activities in real estate projects will be essential in 2024 due to the weak financial health of many real estate companies and their difficulty in accessing capital. Rising project development costs make it necessary to sell projects to financially strong and capable developers to maintain operations and growth.

Experts predict a high likelihood that the Fed will implement interest rate policies in November, even if US interest rates remain high for a longer-than-expected period. This stability in interest rates will make it easier for buyers to arrange funding for future deals.

Regarding the targets of M&A deals, the analysis group believes they will continue to focus on projects with clear legal status, good quality, and significant development potential.

Factors supporting the real estate market recovery

MBS Research identifies several factors supporting the recovery of the real estate market in the near future. Notably, interest rates have reached attractive levels to stimulate market development. Since early 2023, the State Bank of Vietnam (SBV) has reduced operating interest rates four times, bringing the refinancing rate to 4.5% (lower than during the 2020 pandemic). Consequently, medium and long-term lending rates are now around 7.5% - 7.9% (down from 9.3% - 11.4% in mid-2023).

Factors supporting the recovery of real estate market in Vietnam

Exchange rate increases are putting pressure on system liquidity. Market interest rates are showing signs of rising to attract liquidity, which may slightly increase lending rates in the near future. However, the analysis group believes that a moderate increase in interest rates will not have many negative implications for the real estate market. Higher lending rates might stimulate investment into real estate as investors expect interest rates to have bottomed out, leading them to take advantage of favorable rates for investment.

Moreover, improving legal frameworks will boost both future supply and demand. At the end of 2023, the government officially passed the Housing Law 2023 and the Real Estate Business Law 2023. During the 5th extraordinary session, the National Assembly officially passed the Land Law 2024, which is expected to take effect on August 1, 2024.

Key changes in legislation

According to MBS Research, the new regulations in the Real Estate Business Law 2023 focus on limiting excessive capital mobilization and project development that waste social resources by financially weak developers with unclear legal status. The new rules aim to build buyer confidence and bring transparency to the market, though they may create short-term supply shortages, especially in land plot products, and impose financial health requirements on developers to fulfill financial obligations to the state. Previous forms of customer capital mobilization will also be restricted.

The Housing Law 2023 changes mainly encourage the promotion of social housing (NOXH) supply, ensuring social welfare, strengthening buyer confidence, improving liquidity, and invigorating the real estate market.

The Land Law 2024 focuses on regulations that facilitate land clearance, limit disputes, and enhance transparency during implementation. For developers, faster land clearance means shorter project development times. However, determining land prices according to market principles will increase land clearance costs compared to previous periods, as prices align more closely with the market, raising overall project development costs and final product prices. Market-based land price determination still requires time for guidance and application by relevant authorities. Issues in land valuation, such as land origin, will not be completely resolved under the new law.

Additionally, the market's recovery is further driven by investment inflows from remittances. A notable change in the law is the recognition of legal rights and obligations of overseas Vietnamese who still hold Vietnamese nationality. This allows Vietnamese nationals abroad to legally own real estate, resolving previous issues of property disputes due to having to rely on family or acquaintances for property ownership.

Challenges for businesses

Despite positive signals, MBS Research highlights several challenges facing real estate businesses. The resort real estate market remains sluggish, predicted to stay so for a long time due to rampant development and many projects failing to pay returns, low operational efficiency, and eroded investor confidence.

Vietnam's real estate market challenge - bond pressure

Additionally, bond pressure remains a concern. The analysis group estimates the value of maturing real estate bonds (after buybacks) in Q2 2024 and the entire year 2024 to be VND 19,328 billion (down 44.5% year-over-year) and VND 113,654 billion (down 3.3% year-over-year), respectively. The total value of bond buybacks by the end of May 2024 reached VND 12,225 billion (up 5.8% year-over-year), reducing the amount of maturing bonds in 2024 by 9.7% compared to pre-buyback figures.

Source: vietnambiz

Compiled by VietnamCredit

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