The Vietnamese economy, especially the real estate sector, has a significant impact on the value of M&A deals when Japanese firms are looking to conduct M&A of Vietnamese firms. The real estate sector was also in a state of “overheating,” as represented by soaring land prices.
However, the above-mentioned trend is changing as we enter 2023.
In this issue, Phi Hoa, President of ONE-VALUE Corporation, the company that operates this media outlet “VietBiz,” talks in detail about the outlook for the Vietnamese economy in 2023 and his forecast for M&A trends.
Vietnam’s Economy Will Be at A Major Turning Point in 2023
From the end of 2022 to January 2023, we met with presidents of government agencies such as the Ministry of Industry and Trade (MOIT) and the Ministry of Planning and Investment (MPI), as well as major companies representing various industries. Through these discussions, we were convinced that the Vietnamese economy in 2023 will be at a major turning point unlike the past, and that this will be a major tailwind for M&A, especially for Japanese companies.
ーCurrently, the Russia/Ukraine issue and global inflation are having a significant impact on the world economy as well. Do you think that these things will also affect the Vietnamese economy?
Yes, the global recession will continue in 2023 and many Vietnamese companies will experience a downturn in earnings, making it difficult for them to continue to grow as they have in the past. For example, GAFA in the U.S. and major Japanese companies have stopped hiring new employees and are reducing or laying off existing employees. Vietnamese companies are no exception, and unemployment is expected to increase in the manufacturing and service sectors. As unemployment increases, consumption activities will become less active, and the Vietnamese economy as a whole will lose its vitality.
Vietnam’s economic growth rate has been around 5~6% since 2010, but many experts and managers predict that this growth will slow down in 2023 due to the global economic downturn.
Changes in the Real Estate Sector
ーWhat do you expect Vietnam’s real estate sector to look like in 2023?
Until now, real estate prices in Vietnam have soared at a “bubble” rate, so to speak, and many office buildings and high-rise condominiums have been constructed in urban areas. These properties have been purchased mainly by Vietnamese investors and companies for investment purposes. However, after 2023, this trend is expected to slow down and real estate prices are not expected to rise as much as in the past. Depending on the location, real estate prices may fall by 30% to 50%.
ーWhat is behind the slowdown in real estate investment?
The first is the slowdown in Vietnam’s economic growth, as I mentioned earlier. The second factor is that financial institutions have raised interest rates and drastically reduced credit limits, especially for real estate loans. This has made it difficult for domestic investors to raise investment capital through borrowing.
Vietnam’s central bank has had a policy of monetary easing and low interest rates since 2012, but starting in September 2022, it is raising its policy rate in stages with the aim of curbing inflation.
2023 is a Great Opportunity for Japanese Companies to Conduct M&A in Vietnam
ーHow will the transformation of the Vietnamese economy, as you have described it so far, affect Japanese companies?
For foreign investors and companies, 2023 will be an excellent time to invest in Vietnam. The slowing growth of the Vietnamese economy will make it difficult for many Vietnamese companies to operate, and they will be open to investment from outside investors. M&A projects that previously would have required a large amount of money or would have been rejected, will be able to be funded at a lower price after 2023. In other words, it will be a “bargain” time for Japanese companies to invest in Vietnamese companies.
ーWhat about the real estate sector?
With domestic investors unable to raise capital, real estate prices in Vietnam will remain flat or even decline. This will be a great investment opportunity for foreign investors. M&A deals in sectors where real estate is heavily involved, such as logistics and warehousing, will also be a major tailwind for foreign investors.
After the interview (Consideration as VietBiz)
The year 2023 will mark the 50th anniversary of the establishment of diplomatic relations between Japan and Vietnam, and economic relations between the two countries will become closer in the future. As Vietnam’s economic growth comes to an end and the country moves toward the next stage of maturity, 2023 will be a unique opportunity for Japanese companies to conduct M&A activities.
In addition to M&A, now is a good time for many Japanese companies considering expansion into Vietnam to move from the consideration stage to the “execution” stage, as real estate prices appear to have settled down, not only for M&A but also for the establishment of new production facilities.