Commentary

Developers race for land banks in Vietnam

While Covid-19 posed challenges, it also brought opportunities for many financially strong developers to actively acquire new land banks?

September 28, 2021

Two essential factors project the performance of a real estate business: development capacity and future land banks. Development capacity, represented by the number of projects developed or launched and their sale performances, proves a growing business. In addition, a land bank is a necessary condition for any real estate business to survive. Given the context that developable land bank has become increasingly limited over the past few years, even before Covid, this article examines how the current race for extending land bank will change the residential market landscape over the next five years.

Although Covid has seriously impacted all types of businesses, the real estate market in Vietnam remains active with sizable land transactions. As shown in Figure 1, the scale of transactions measured by land area (ha) increased remarkably during the 2020 – 1H21 period, despite the pandemic.

Figure 1: Total scale of land transactions

Source: JLL Research, RCA Analytics

The development land in big cities like HCMC and Hanoi is becoming increasingly scarce while the land prices are rising. Considering the trend, many developers have turned to new potential destinations, such as satellite provinces of HCMC and Hanoi, regions along the Central Coast of Vietnam, or even the Central Highlands. Listed below are some notable transactions over the past two years:

  • In early 2021, Vinhomes (HOSE: VHM)1, one of the largest real-estate developers in Vietnam, both in terms of units launched and future land banks, announced the acquisition of Dai An Urban Area in Hung Yen Province, a satellite region in the East of Hanoi. The estimated value of the deal was VND 3,100 billion (equivalent to USD 134 million)2. Dai An Urban Project, known as Vinhomes Dream City, is considered the largest project to be launched in the other half of 2021. According to the Vinhomes 2020 annual report, Vinhomes Dream City has a total scale of 486 ha, providing various products such as apartments, villas, townhouses and shophouses. The unique feature of this project is the world’s largest wave pool complex with a scale of up to 18.1 ha.
  • Map 1: Future Apartment supply in Greater Hanoi area (2H21 – 2024)

    Source: JLL Research, MapIT

    In Southern Vietnam, Nam Long Group(HOSE: NLG), one of the country’s most reputed affordable housing developers, announced to have repurchased all shares of the 170-ha project in Dong Nai Province from Keppel Land. A Japanese developer, Hankyu Hanshin Properties, will join hands with Nam Long to develop this project, with Nam Long having a 65.1% stake and Hankyu Hanshin 34.9%. Named Izumi City, the project will have investments up to VND 18,600 billion (equivalent to USD 803.5 million).

    Map 2: Future Villas/Townhouses supply in a part of Dong Nai Province, 2H21 - 2024

    Source: JLL Research, MapIT

    Central Coast cities such as Da Nang, Nha Trang, Quy Nhon also emerged as good destinations for land banks. For example, Danh Khoi Group (HNX: NRC) has acquired a riverside tower project (about 0.3 ha) in Da Nang from Sun Frontier Investment Ltd. Previously, this developer had acquired more than 11,000 square metres of land at Con Tan Lap residential area (in Nha Trang) from Song Da Nha Trang JSC.

    Several developers like Novaland (HOSE: NVL), Phat Dat (HOSE: PDR), Dat Xanh (HOSE: DXG), DIC Corp (HOSE: DIG) in their 2020 annual report declared an ambitious strategy to continue acquiring land banks preparing for the future. So, what does this intriguing race imply?

    • Vietnam has a young population mostly residing in metropolitan cities with rapid urbanisation and improving infrastructure. This will define a new trend in residential development with new supply to be located in satellite provinces, away from large city centres, either as a vibrant large-scale integrated project or as a weekend hideaway.
    • Active acquisition activities will likely change the landscape. While Vinhomes continues to lead the market with a significant share, others like Novaland and Nam Long are likely to climb the top ranking with their expanding portfolios. As most projects are by high-profile developers with a sustainable development strategy, the market can anticipate better quality in the next generation of residential development.
    • It's also worth looking at the stock performance of some of the developers mentioned above. They outperformed the VN index, reflecting positive prospects and access to new sources of funding. For example, Dragon Capital, who bought about 10% of An Gia Real Estate (HOSE: AGG), aggressively acquired land banks in the 2019 – 2020 period at four projects with scale up to 41 ha and is under negotiation to acquire 45 ha more in HCMC and Binh Duong Province. Similarly, Nam Long Group has successfully issued stocks at a price of VND 35,000 each, about 35% lower than the market price, to many well-known investment funds such as Dragon Capital, Pyn Elite Fund and Kim Investment Funds.

    Table 1: The YTD increase in price share of some Vietnamese listed real estate companies

    Ticker

    Price on August 31st 2021 (VND)

    Price on January 4th 2021 (VND)

    % change

    VHM

    106,400

    92,000

    15.7%

    NLG

    43,500

    29,750

    46.2%

    NVL

    104,400

    65,100

    60.4%

    NRC

    19,900

    15,200

    30.9%

    PDR

    87,900

    51,800

    69.7%

    DXG

    22,200

    16,400

    35.4%

    DIG

    34,900

    29,550

    18.1%

    AGG

    48,000

    29,100

    64.9%

    Source: Vietstock4, as of August 2021, the change did not reflect the impact of dividend

    In a rapidly rising market like Vietnam, acquiring land requires more than money. A clear and sustainable business strategy, long term vision, capacity to develop, deep market insight, and access to suitable land banks are imperative for any developer to succeed in the near and long term.

    [1] HOSE: Ho Chi Minh City Stock Exchange
    [2] Vinhomes 2020 Annual Report
    [3] Nam Long partners with Hankyu Hanshin Properties Corp to build $814-million city in Dong Nai, https://www.namlongvn.com/news/3357-nam-long-partners-with-hankyu-hanshin-properties-corp-to-build-814-million-city-in-dong-nai/ , 14 September 2021
    [4] Vietstock