Opportunities open to buy distressed assets

Monday, Jun 24, 2013 09:00

The time is ripe for developers and other buyers to find ways to take over distressed assets in Viet Nam's real estate market, according to experts.— Photo dantri

HCM CITY (Biz Hub)— The time is ripe for developers and other buyers to find ways to take over distressed assets in Viet Nam's real estate market, according to experts.

As the market has been stumbling, the lack of capital resources has pushed many developers to restructure their portfolios to focus on core and important projects.

Moreover, the market is under pressure to get rid of its nonperforming loans.

The actual ratio of nonperforming loans is believed to be greater than the reported 6 percent, 70 per cent of which are attributed to the real estate sector, according to some experts.

However, bad debts and their assets have not been available for investors to acquire openly from banks or investors.

Unless both banks and investors move quickly to deleverage, then the recovery will be a lot slower and more painful, experts have warned.

"There are clear signs of distressed property assets all over Viet Nam. It is just a matter of time before they come to the market," said Chris Brown, general director of real-estate consultant Cushman & Wakefield Viet Nam.

Only a limited number of investors and developers survived more than one property cycle, and Viet Nam's property cycle is experiencing its first major downturn.

Casualties are unavoidable, but other organisations will come out of it in much better shape to take on the next upward swing, he noted.

There is a perception among some Vietnamese owners and investors that "the vultures are circling" and all of their assets will be picked off by foreign investors over the next two to three years.

Many foreign investors, however, still see Viet Nam as a much too immature market for them to invest.

During the recent market downturn, many of them were hurt and will not return to the Viet Nam market soon, Brown said.

Until there is a downward shift in land prices or a release of distressed assets, foreign investment will still overshadow that of local property investment.

The presence of more experienced and diligent investors in the market with a lot of fly-by-night operators taken out of the equation by the downturn should bring about a healthier and more professional market for the future.

Regional Asian countries that have a track record of investing in Viet Nam are most interested in distressed assets in the country, since they understand the investment landscape. Those include the Japanese, Taiwanese, Singaporeans and Koreans.

There is an increasing amount of interest as well from Middle Eastern and Russian groups, but they generally focus on prime properties or prime development opportunities in Ha Noi and HCM City. These are picked off first in a "flight to quality".

Operating assets and development sites at strategic locations are the most favoured.

Distressed assets most hunted by developers are the ones that are clean, have a good location, reasonable ownership structure and attractive and competitively priced assets.

Those properties in poor locations, with little market demand and with complicated ownership structures in place, will see the least amount of attention. —VNS

One of the biggest barriers to entry and the single biggest factor in ensuring profitable property development is land pricing. — VNS

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