New land law to drive down Vietnam real estate prices: expert

The amended Land Law is forecast to have an impact on citizens and the entire economy. Which areas do you think will be most obviously and directly impacted?

The first group I want to mention is residents because they are the center of all legal policies, including land policies.

The amended Land Law expands access to land. For example, it institutionalizes the orientations stated in the Party Central Committee’s Resolution No. 18-NQ/TW on "encouraging the development of the land use rights market, especially the agricultural land lease market” and "expanding the group of subjects entitled to be transfered agricultural land use rights and the scope".

Specifically, the law allows individuals who do not directly engage in agricultural production to be transfered rice land use rights. However, individuals must establish an economic organization and have an agricultural land use plan approved by the district-level People's Committee when receiving or donating rice land use rights beyond the limit, except for gifting heirs.

Renovating land valuation methods is also the "soul" of the new version of the Land Law. Accordingly, the government's land price bracket is eliminated and the land price list of provincial People's Committees will be updated annually and adjusted throughout the year based on price fluctuations.

The new law also emphasizes land valuation in line with market principles. Thus, in case land is recovered for defense, security or socio-economic development purposes, people will be properly compensated because the land price will be defined fairly based on the market price.

Regarding economic activities, the real estate sector, especially businesses implementing commercial housing and urban area projects, will be directly affected. The revised law continues to maintain land recovery rights for socio-economic development for national and public benefits, including land recovery to implement multi-function urban area projects with synchronous social and technical infrastructure systems.

This regulation will continue to create momentum for economic development and raise urbanization rates. However, land will not be recovered for small and fragmented projects, but mainly for large-scale urban area projects with synchronous and modern infrastructure.

Land recovery for urban area projects with synchronous infrastructure will be associated with investor selection through auctions of land use rights and bidding for land use projects. This will help professionalize and make the real estate market transparent, thus increasing competition and limiting cronyism. Competition is always a good driving force for development.

The auction and bidding process to select investors has very strict requirements for participating investors. Businesses must have very strong financial resources as well as high technical capacity and rich experience, especially "real" capacity through projects they have completed in the past. This is a good opportunity to "clean up" the market. Small businesses will be forced to shake hands to form large enterprises to increase competitiveness. The market, therefore, will develop in depth and become more professional.

In addition, types of industrial real estate will also have more room for development. The amended Land Law still maintains land recovery for projects to build industrial parks, industrial clusters and high-tech parks. Developers of industrial park, industrial cluster and high-tech park projects will have the right to choose land rent payment options (one-time payment or annual payment), helping businesses proactively prepare business plans and allocate resources.

Do the revised regulations on land recovery and land pricing ensure a harmony of interests between businesses, the state and the people? Can they fix previous limitations?

With a low urbanization rate and weak infrastructure, land recovery through administrative mechanisms is necessary. Without land recovery for building urban areas, it is impossible to create world-class urban areas of hundreds or thousands of hectares that create driving forces for an entire region's growth. Of course, this is the "hottest" issue of the Land Law and has always been the source of many disputes and lawsuits.

Under the new law, the state will only recover land for projects to build urban areas with multiple functions and synchronous technical-social infrastructure systems.

People whose land is recovered for urban development, after receiving compensation and support, can continue to live in the surrounding areas and enjoy utilities and infrastructure brought by the project, and at the same time have the opportunity to change jobs from agricultural to non-agricultural fields when the project is implemented.

To minimize injustice when recovering land and ensure social justice, compensation, support and resettlement must be done well. As I mentioned, the land price used to calculate compensation for people must be a specific land price calculated fairly according to the market price.

The current land price list based on the government's land price frame has resulted in compensation prices far lower than market rates. This has been the cause of disputes and complaints. Thus, removing the land price frame and updating the land price list annually will make compensation calculations closer to the market price, ensuring the rights of people whose land is recovered.

In addition, local authorities’ enforcement is also extremely important. When implementing real estate projects requiring land recovery, the resettlement must be focused following the spirit of the Party Central Committee’s Resolution 18-NQ/TW. Resettlement must be based on the principle of reserving land areas with the best living conditions for people, and then commercial land funds for business activities for profits.

"Fair compensation, practical support and convenient resettlement", in my opinion, are the key to success when implementing economic development projects in the new era.

Which provisions in the amended Land Law will have a direct, rapid and strong impact on the real estate market?

As I mentioned, land recovery for large-scale projects with synchronous infrastructure associated with competitive auctions and bidding will make the real estate market transparent and develop in a professional manner.

A very big issue that is also of concern to the business community is that the amended Land Law allows more cases of land leases with annual payments and limits land leases with one-time payments.

There are only three groups entitled to one-time land rent payments. Group 1 includes agricultural, forestry and aquaculture projects. Group 2 features projects developing infrastructure in industrial parks and clusters. Group 3 comprises public works for business and projects using commercial and service land for tourism and office business activities.

The remaining production and business projects will be forced to pay land rents annually with the price to be kept stable for each 5-year cycle. This is the right policy because it is consistent with the nature of commercial and service land, which is an important means of production.

For commercial and service land (or non-agricultural production and business land in general), annual land rent payments are required. This will end the phenomenon of "holding land and waiting for price hikes” and then selling or changing the land use purpose to residential land - a phenomenon that has occurred widely in recent times.

With the adjustments in the new Land Law, in most cases, businesses using commercial and service land must rent land with annual payments and cannot transfer land use rights. They can only sell or lease assets on land after construction has been completed.

Thus, the law forces commercial and service land users to put the land into use. When businesses have to spend a large amount of money on land rent, they will invest in creating assets on that land, thus minimizing speculation. The market will include only businesses with real needs, strengths, capacity, and experience to implement projects that use land effectively.

However, the amended law is yet to resolve some existing problems in practice, typically factories in the inner city that must be relocated to develop housing combined with commercial and services areas.

The reason is that the new law allows those with land use rights to change the land use purposes according to the planning to implement their projects, but cases of changing the purpose to develop a commercial housing project must have a certain percentage of residential land. For example, if the entire land area is production and business land, the land use purpose cannot be changed.

In such a case, state agencies are not permitted to add the land of an enterprise in production onto the list of those recovered to organize auctions and bidding because the law only allows land recovery for urban area projects with mixed functions and synchronous technical-social infrastructure.

Most of the production and business land plots in the inner city are small-scale and do not have enough land funds to build synchronous infrastructure, so they are ineligible for land recovery. In this case, the project falls into a dilemma when the state cannot recover land and the business cannot change the land use purpose, causing delays in relocating production facilities from urban areas.

In recent years, the real estate market has fallen into a deadlock with many paradoxes. Businesses could not deploy new projects while people had to buy houses at sky-high prices? How does the new Land Law deal with these issues?

Continuously escalating real estate prices in recent times have come from the scarcity of supply and people's high demand, while very few projects have been approved due to legal entanglements and credit limitations.

During the process of drafting the amended Land Law, many businesses were very concerned about the land access policy and further land price hikes as the state will mainly allocate and lease land through auctions and bidding.

However, in a market economy, commodity prices are influenced by many factors. The state will implement effective solutions to combat speculation (maybe imposing a real estate tax). When the speculative factor is minimized and only real demand remains, the legal corridor is clear and transparent, and legal barriers are removed for projects, creating abundant supply, the market’s supply and demand will be balanced, naturally real estate owners will have to reduce the profit included in product prices. As a result, real estate prices will decrease.

In addition, the recently passed amended Law on Real Estate Business also tightens real estate business in the form of "dividing plots for sale". The law only allows division and sale of land plots in communes, townships and grade IV-or-lower-level urban areas. Inner city areas and urban areas of centrally-run cities and provincially-managed towns and townships will basically not be allowed to divide land plots for sale.

The land plot business - the cause of land speculation, inflated prices, "land fever" and "bubbles" - will be controlled in the near future. In the long term, the market will become professional because businesses will focus on investing in creating houses and buildings on land instead of just investing in infrastructure and selling them, making land use more economical and effective and avoiding "land speculation, slow land use, and land abandonment".

The revised land law does not expand land rights for foreign-invested economic organizations but has open procedural mechanisms. What do you think about this change?

The revised Land Law still limits access to land for economic organizations with foreign capital (FDI enterprises).

In terms of procedures, the new law seems to be more open when dealing with cases where FDI enterprises are transfered all or part of a real estate project. According to the 2013 Land Law, in case an FDI enterprise receives a project transfer, the state must recover the transferor's land to allocate it to the FDI enterprise, creating cumbersome procedures regarding land recovery and allocation, and land price re-determination.

The amended law stipulates that in case an FDI enterprise is transfered a real estate project, the land will not be recovered, but the state will allocate or lease land without auction or bidding to the FDI enterprise. Land use fees and land rent will be not re-calculated.

However, there are still questions like "If the transferor's land is not recovered, how can the land be allocated to the FDI enterprise? Will it lead to the land plot having two users?

Vietnam’s National Assembly, the country’s highest legislative body, on January 18, 2024 passed long-delayed amendments to the Land Law after four working sessions - a record in legislative work.

The passage was endorsed by 432 out of 477 parliament members present at an extraordinary session. The new Land Law with 16 chapters and 260 articles will take effect on January 1, 2025.