Exciting time for real estate exits in Vietnam, despite hurdles: Troy Griffiths, Savills

A year since the new law on housing and real estate in Vietnam came into effect, foreign investment inflows into the local property market are set to touch new highs this fiscal according market experts. While residential and industrial real estate sectors continue to receive a boost from the migration of foreign companies and individuals into Vietnam, riding on the several free trade pacts Vietnam has inked, investment in the hospitality segment tends to focus on coastal cities such as Danang, the third largest after Hanoi and Ho Chi Minh City.

Around seven hotel and resort acquisitions have taken place in Danang so far this year, with values between $20-60 million, according to data compiled by real estate service firm Savills Vietnam, which recently launched an office in that city. Having been present in the city for years as an agency for asset management firm VinaCapital, Savills Vietnam decided to open an office there to tap the growth of this market amidst an increasing interest from both domestic and international investors, Troy Griffiths, deputy managing director of Savills Vietnam, said in an interaction. Edited Excerpts:

What’s behind Savills Vietnam’s decision to open the Danang office?

It is something that we have been thinking about for quite a long time. We represented VinaCapital in Danang for over six years and have sold very well for them. We have reached a point in the Danang market where there is now a multitude of offerings. We are now in a position where we need to be independent to offer all of those various developments to the market. Plus, the Danang market has now reached the level of maturity that can sustain investment. We have sold a lot of products here over the years (other than representing for VinaCapital), whether it is Hyatt, the Danang Beach Resort, Ocean Villas or Azura. There are a lot of things that we have been involved in. In the early days back in 2010, there were only two or three developments available, now there are dozens of them.

Due to the tourism potential of the city, is hospitality real estate the best performer in this market?

Very clearly. Now we are seeing an enormous boon. We are on the edge of North Asia so we can access the two largest tourism source markets in the world, which are China and Russia. It is very open to that in Danang, a beautiful location. The second thing that a lot of people overlook is that we’re in the golden era of domestic travel for Vietnam. Vietnamese have never travelled as much as they are travelling now. If you have a look at our tourism visitations to Danang, around two thirds to 70 per cent are domestic travelers. We have highlighted how important international travelers are, but the domestic travelers are critical and are growing enormously.

How about other segments, for example residential, office and industrial real estate?

I think industrial real estate is a little bit of a sleeping giant. The Danang government has long been renowned as a very progressive government. But it is yet to have the industrial manufacturing that we expect. They’re looking towards tertiary in high tech but yet to really get that impetus. There’s been a lot of catalyst development with FPT (a Vietnamese major tech firm that also operates higher education services) and all of the others, but yet to kick it to the next phase. But that would be exciting. Danang has everything here to do that. For residential, the second home market in Vietnam is enormous. We are seeing a lot of the dwellings that were purchased two or three years ago, perhaps with investment intentions, are now being occupied and being used very heavily. So I think the second home and residential market is enormous in Danang. Office is another sector that will follow. We’ve got the right demand growing in many sectors. Some particular industries are growing enormously but yet to convert into office demand.

What is the foreign interest in the Danang property market?

Being one of the closest beach and warm weather destination to North Asia has immediate logical advantages. The best case study we can find is to look at the proximity of Mexico to the US, the growth of Mexican tourism, just because of its near proximity and warm weather, is enormous. In Danang, we are just at the start and it is very exciting for foreign ownership. It will be controlled, we can only have 30 per cent of a condo complex, so there’s no danger of foreigners overrunning Danang. But it’s certainly a really good source of capital.

Is the limit on foreign ownership a hurdle to making exits?

We’ve seen a couple of threshold limits reached in Saigon (Ho Chi Minh City). The Nassim, for example, a Hong Kong Land development, has reached its 30 per cent limit. It is very attractive to foreign purchases, being a grade-A development by an international developer. But the foreign ownership has now reached 30 per cent, and now it’s going to be interesting to see what happens next, whether those foreign units will trade at a premium. I think in Danang, from the supply side, there should be a lot of choices. That should keep the foreigners happy for some time.

Can you name some recent M&A deals in Danang?

There have been a lot of them. Some of the really big ones that we know are certainly the magnificent $4 billion Hoi An South development with (Chow Tai Fook’s) New World and VinaCapital; Montgomerie Links (sold for $25.5 million by Indochina Capital); Alphanam venturing in this market, the Danang Beach Resort selling to BRG Group; and Novaland making a purchase in the city, among many others. The scene looks very active.

How about the exit environment in the entire Vietnam real estate market?

It is an exciting time. There is a lot of foreign interest. Foreign interest tends to get the headlines but a lot of the assets that are trading were sold to local vehicles. It’s a very liquid time. One deal that we’ve been involved in most recently is the sale of the Duxton Hotel, in a $49 million transaction selling to a local Vietnamese company. That attracted a lot of interest. And there are many deals underway.

In a previous interview with your managing director, it was said that the Vietnamese real estate market was attracting a wider spectrum of investors. But some institutional investors seem to be truncating their real estate portfolios. What is the reason behind that?

I think in many of the cases, where Vietnam property has experienced a boom previously, it was the start of a lot of the old funds, a VinaCapital fund or an Indochina fund. Those funds have a set life that, even it is extended, will come to an end. Then the market has softened off. But (the funds) are looking again. There is private equity out there and a wall of money wants to get into Vietnam. In particular, VinaCapital is quite a high profile investor in Vietnam. It has a couple of extensions to deliver returns to shareholders. It is reinventing itself, transforming the fund moving forward. It’s now again a popular point in the cycle and I’m pretty sure they’ll be able to track funds very easily. So it’s just a bit of a timing issue.

Source: Dealstreetasia.com