Early enforcement of real estate-related laws can remove bottlenecks, increase market transparency: expert

Early, synchronous enforcement of revised real estate-related laws is expected to remove legal bottlenecks and make the market more transparent, writes real estate legal expert Nguyen Van Dinh.

I just attended a seminar on "Focus of real estate investment in the new context" that discussed the impact of several laws including the Land Law, the Real Estate Business Law, the Housing Law ,and the Law on Credit Institutions on the property market. The popular view of the speakers at the event was that real estate prices were likely to increase sharply in the near future.

In the first months of 2024, the realty market experienced a new price fever, especially in the apartment segment in inner cities.

According to real estate services company CBRE, the average selling price of apartments in the second quarter of 2024 reached VND59 million ($2,350) per square meter in Hanoi and VND63 million ($2,510) in Ho Chi Minh City.

In the secondary market, the corresponding figures were VND38 million ($1,510) and VND47 million ($1,870). Apartment prices in the two major cities have climbed 20% recently, an unprecedented increase.

The government has issued many resolutions, directives and dispatches to solve market-related problems, especially promoting the social housing and affordable housing segments to address real needs, including a VND120 trillion ($4.76 billion) credit package. However, progress has been very slow with results far from set goals.

In this context, the Land Law and related laws that took effect on August 1, 2024 five months ahead of the original schedule, will alter the current land price framework and feature land prices issued annually by provincial people's committees that are based on market principles (benefiting residents whose land is taken for real estate projects).

Some localities like HCMC are preparing to devise new land (acquisition) prices that will increase manifold from current levels.

Businesses worried

In general, land prices issued by state agencies are forecast to soar, raising concerns about rising costs and prices of real estate projects and products.

Another issue that worries many businesses lies in the land access policy in the new era wherein the state mainly allocates and leases land through auctions. Businesses are worried that these competitive "fights" will push up land prices, making real estate prices go beyond people's affordability, thus hindering business activities of enterprises.

I agree that land prices issued by localities will increase in the near future, but whether it will lead to a rise in the cost of real estate products (housing and land plots) cannot be ascertained yet.

It should be emphasized that in a market economy, commodity prices are influenced by many factors, including speculation and expected profits of asset holders.

Legal problems

The main reason for the recent increase in house and land prices is legal problems that have led to very few projects being implemented and qualifying for sales so as to provide the market with products. The continuously skyrocketing real estate prices, forcing people to buy houses at “sky-high" prices in recent times is a consequence of scarce supply.

People’s demand was very high while the number of approved projects was limited due to legal problems and difficulties in credit access.

There have been many complaints about increasing “price inflation” regarding house sand land. But in the end, when supply is far behind demand, those who own houses and land naturally have the right to command high prices. Methods of pushing up real estate prices, legally or illegally, will inevitably appear.

So the question arises: Can brokers and speculators manipulate house and land prices if supply is balanced with demand?

This would depend on how effectively the new laws are implemented.

As of now, we can say that early enforcement of the Land Law in sync with the Housing Law, the Real Estate Business Law and detailed regulatory documents is expected to remove legal bottlenecks, making the legal system more transparent.

As a result, project clearance will be expedited and a measure of supply-demand balance achieved. Naturally, people with assets will have to reduce expected profits, while focusing on products that meet real needs. This will allow greater control over real estate prices.

In general, whether real estate prices will increase sharply or not is still an assumption, depending largely on the implementation by localities because the laws basically authorize provincial people's committees to do related works, including approval of plans, granting in-principle investment approval, land recovery, land allocation and land price determination.

If local officials are afraid of responsibility, the people will suffer.

Another reason causing house and land prices to escalate is speculation and hoarding backed by banks. Speculators form the "VIP" customer base of the banking industry because their loans are always mortgaged with houses and land which typically see continuous price hikes and carry little risk.

People's investment needs are legitimate, but when this happens at a high level, it will become speculation and the hoarding of houses and land, distorting the market, causing a waste of land and other resources as mentioned in Resolution 18 of the Party Central Committee dated June 16, 2022.

Real estate tax

So, a real estate tax to fight speculation is one measure that can be taken. Recently, HCMC proposed piloting tax collection from real estate that the owner does not directly use.

In the long term, collecting real estate tax is a necessary step that has a clear legal and political basis. Resolution 18 set out the task of perfecting the institution: "Imposing higher tax rates on people who use large areas of land and many houses as well as show signs of land speculation, slow land use and land abandonment".

In addition, the new Real Estate Business Law also tightens real estate business to prevent "dividing land into plots for sale”. Dividing land into plots will not be allowed in downtown and urban areas of major cities.

The land plot business - another cause of land speculation, inflated prices, "land fevers" and "bubbles" - will be controlled in the near future. In the long term, the market will become professional because businesses will focus on investment in creating houses and buildings on land instead of just investing in infrastructure for sale. As a result, land will be used economically and effectively, avoiding price inflation and land fevers.

However, the new policies will take a certain amount of time to prove effective. “New projects” will be deployed quickly and effectively in the new legal cycle, but it will take 1-2 years for products to be supplied to the market.

To control house and land prices in the short term, it is necessary to consider solutions to remove difficulties for "old projects".

A pilot scheme on converting other types of land (non-residential land) into those serving commercial housing projects is necessary to clear obstacles to more than 600 projects nationwide (according to data from the Ministry of Natural Resources and Environment).

Specific policies should also be piloted to facilitate projects that are facing problems. Problems may arise from violations by state agencies and investors, and while the law does not allow legalization of such violations, a solution that harmonizes the interests of the parties involved is still needed so that project implementation can continue, avoiding a waste of land resources.