Removing legal bottlenecks first step to save property market

By Nguyen Van Dinh

Tue, February 28, 2023 | 8:52 am GMT+7

Removal of legal bottlenecks is paramount to saving the ailing real estate market, wrote Nguyen Van Dinh, a Vietnamese land law researcher.

A few years ago, when I was in charge of project legal affairs at a real estate company, one of my colleagues told me about his visit to a state agency for land-related procedures. A staff member of the Department of Natural Resources and Environment said when explaining the reason for not signing the application form: "I really want to help you, but at this time, I only want to be safe."

'Wait! Wait! Wait!'

The story of my old colleague made me think a lot. Until the February 17 national conference on promoting the real estate market chaired by Prime Minister Pham Minh Chinh, the problem became more and more obvious. Chairman of the Ho Chi Minh City Real Estate Association Le Hoang Chau said the two biggest challenges that led to the dissolution of more than 1,200 property businesses in 2022 are legal problems and difficult credit access. He estimated administrative procedural issues account for 70% of the woes property developers face. This rate received the nod of National Financial and Monetary Policy Advisory Council member Le Xuan Nghia.

Novaland chairman Bui Thanh Nhon added: "We just want support in terms of mechanism. Businesses nationwide propose the Prime Minister direct the removal of legal problems facing their projects. This congestion has lasted for many years without solutions."

So why are legal problems causing so many troubles for the property market?

To answer that question, I cite the half-joke, half-truth of my friend, who is an official of a department in Da Nang - the most livable city in Vietnam: "In this time, understanding and following the law is very difficult and we may encounter problems when enforcing the law. If you want to do something, you must be flexible and if you want no mistake, temporally, you should not do it yet”.

That is the context of Da Nang today, after the two former chairmen and many department leaders were found to be involved in criminal cases. Currently, the central city stipulates that investors who want to obtain a construction permit must fulfill land-related financial obligations. This is its own regulation as the Vietnamese law does not feature the condition. In addition, businesses cannot pay the land fees early for a construction license because the city's land valuation process is often lengthy.

Broadly speaking, it is not just the story of a locality in land management. The land valuation process for an urban project usually lasts 2-3 years, or even 3-4 years for some, greatly affecting the business plan of the investor when the land price is an important input parameter to determine the sales price in line with the business strategy of the enterprise. So which price will the investor offer when they do not know the land use fees to be paid?

It can be said that land valuation is always complicated and sensitive and poses many potential negative risks. Continuous prosecutions and arrests of officials for wrongdoings in land valuation across the country have led to fears of making mistakes and taking responsibility among officials and civil servants.

The land law stipulates four specific land valuation methods, namely direct comparison, deduction, potential income and surplus, but localities are crying because each method produces a different result. So who would dare approve the land price for fear that one day the post-audit agency would ask a question: why not this price but that one?

Recently, a locality came up with the initiative to hire an international "Big 4" auditing unit to re-audit the results of the land valuation consultant and even consulted the Ministry of Finance and the Ministry of Natural Resources and Environment, inspection and audit agencies on the land price determination results. Post-audit agencies are mobilized to pre-audit to help officials feel secure to approve land prices.

We have talked a lot about the requirement of a unified, feasible, economical, effective, timely, accessible and easy-to-implement legal system for the people to create a competitive, healthy business and investment environment. But in fact, we have an inconsistent legal system, leading to three bad ways in enforcement: deliberately taking advantage of the "loopholes" in the law to profit; accidentally making mistakes due to inadequate awareness; and doing nothing for fear of making mistakes and bearing responsibility.

Worryingly, the third is becoming more and more popular in many localities, directly leading to "congestion" in handling legal procedures, causing project delays, supply scarcity, and soaring real estate prices.

This fear has become a common phenomenon. The issues are clear, but localities still need the guidance of central agencies before making decisions.

Therefore, I completely agree with the opinion of businesses and experts that solving problems in the real estate market must start from legal issues because this is the cause of all causes. It is necessary to immediately remove the conflicts, contradictions and overlaps between laws.

For example, the current Land Law is not clear, with conflicts between this regulation and others. Specifically, Article 59 gives the provincial people's committees the power to allow organizations to change the land use purpose, but Article 118 stipulates the cases in which land use rights must be auctioned.

So, in which case is the enterprise allowed to change the land use purpose, and in which case must the land use rights be auctioned? This unclear regulation has hindered the relocation of polluting factories from urban areas.

Another outstanding issue is that the planning has a term of only 10-15 years and quickly becomes outdated while the project duration and land use period are very long, up to 50-70 years. As a result, businesses who have operated for 10-20 years are worried that their projects no longer meet planning requirements.

Thus, the bottleneck removal must come from the law-making stage because an unclear legal system containing many contradictions and overlaps will be a great "challenge" for cadres and civil servants in law enforcement.

In principle, businesses and people are allowed to do everything that is not prohibited by law, but state agencies, officials and civil servants when performing their official duties can only do what the law prescribes. The “creativity” in law enforcement must be the “creativity” within a framework in order to avoid abuse of power, emotional or negative acts.

What mechanism protects creative staff?

If you want to do something right, you can't be fast, if you want to do it fast, you must accept a few mistakes. That is the real situation of law enforcement in our country over the past years, and changes are needed to remove bottlenecks and free up resources.

The 13th National Party Congress has set the goal: "Having appropriate incentive policies and mechanisms to protect officials and Party members who have a high combatant capacity; set an example in realizing the Party's principles and the State’s laws; dare to think, dare to speak, dare to do, dare to take responsibility, dare to innovate, dare to face difficulties and challenges, and act decisively for the common interest".

On that basis, the Politburo issued Conclusion No. 14-KL/TW dated September 22, 2021 on the policy of encouraging and protecting dynamic and creative cadres for the common good. The conclusion stated "Encouraging officials to apply creative thinking and breakthrough ways to remove bottlenecks in mechanisms and policies. When piloting, if officials fail to produce results or cause loses, the competent authorities must promptly identify objective and subjective causes and make an impartial assessment for appropriate settlement. If they strictly follow the policy and have a pure motive for the common good, they will be considered to be exempted from or get reduced punishments".

The Party's socio-economic development strategy for the 2021-2030 period also defines: "Speeding up the improvement of the legal system, mechanisms and policies to ensure synchronization and transparency of market factors to enable capitalization of resources, allocate them reasonably and use them effectively".

Thus, it is necessary to have a mechanism to protect cadres and remove bottlenecks from the amendment and improvement of laws. I think that once there is a clear, transparent, unified and synchronous legal system, cadres and civil servants cannot delay procedure processing as this behavior will create grounds for legal action under the Law on Administrative Procedures.

Building a synchronous and transparent legal system will clear up the market and create an abundant supply of products, helping reduce real estate prices and leading to the recovery and development of the whole economy.