Vietnam is currently experiencing significant growth and development in its economy, making it an attractive destination for investors and businesses. However, when it comes to investing and conducting business in the country, particularly in the areas of land, housing, and real estate, several pressing issues require immediate attention. These issues have become a growing concern for both local and foreign investors, and require careful consideration and strategic planning. In this article, we will delve into the current challenges and obstacles faced by investors in regards to the issue of land, housing, and real estate in Vietnam, and explore potential solutions to overcome these hurdles.
The issuance of the Law on Investment
In relation to investing and doing business in Vietnam, the current issue concerning land, housing, and real estate has raised concerns among investors. The new Law on Investment has established various levels of authorities, such as the National Assembly, the Prime Minister, and the Provincial People’s Committee, with the power to approve and select investors for projects involving land use. Similarly, the Law on land has outlined regulations on land allocation, lease, and change of land use, also specifying different levels of authorities for specific land uses or changes. However, the existence of these provisions has caused confusion for investors, as they both directly impact their investments, even though they regulate different aspects of land use and investment.
The recently issued Decree 02/2022/ND-CP, which pertains to the Law on Real Estate Business, lacks clarity regarding the overlap between real estate regulations and investment regulations. Two cases take precedence over real estate regulations according to Article 9 of this Decree: real estate projects in which the authority has approved for the investors under the 2020 Law on Investment (specifically Article 29), and real estate projects in which the investor has obtained the Investment Registration Certificate in accordance with the 2020 Investment Law. Developers whose real estate projects were approved under the previous law (such as the Law on Investment 2014 or earlier) have faced confusion caused by this provision. It is worth noting that the draft amended Law on Real Estate Business does not provide much clarity on this matter either.
Access to land
Under current land regulations, it widely understood that the State generally limited to leasing land directly or obtaining land through capital contribution from a Vietnamese enterprise, except for within industrial parks to foreign-invested enterprises (FIEs) in Vietnam. However, these methods often do not meet the commercial requirements of most FIEs. While Article 153.3 of the Law on Land stipulates that FIEs can lease commercial land and non-agricultural production land from economic organizations, in practice, there are no clear cases where local landowners permitted to lease land directly to FIEs for investment projects. The most common and viable option for FIEs is to lease assets attached to the land, such as offices or factories.
Another issue faced by international investors in the industrial and logistics sectors is difficulty in accessing land in Vietnam due to high prices set by local vendors, as there are concerns about local enterprises engaging in land speculation. Currently, the government has limited regulations and tools to control these vendors and speculators. One proposed solution is to restrict independent property brokers and require them to work for established firms and undergo more rigorous certification examinations. This may raise the standards for brokerage services and discourage speculation to some extent, but it is only part of the solution. Local businesses should take stronger measures to ensure that they return the property to the State if they delay their implementation of land use projects. Local governments themselves need to adopt a more cautious approach when assessing investor qualifications.
Vietnamese entities cannot use their land use rights and attached assets (such as factories) as collateral for loans from foreign lenders. As a result, Vietnamese entities often face challenges in obtaining offshore financing resources.
Relevant procedures
(i) Land use proposal:
Investors who want to apply for an investment project that involves land use and the allocation/lease of land from the competent authorities must submit a proposal for their investment project to the appropriate investment authority, including information on land use demand. Moreover, they have to prepare a land use demand document based on the land allocation and lease dossier, which they submit after the competent land authority approves the investment policy. As a result, the relevant authorities will evaluate the investor’s land use proposals twice.
(ii) Extension of project duration and land use term:
According to the Law on Investment and the Law on Land, investors must extend both the land use term and the duration of their investment project at least six months before their expiration. However, it is unclear which should extend first between the two.
According to the guidance document of the Law on Land, if an investment project needs an extension, the investor must apply for the extension at least six months before the expiry date and must first obtain approval from the competent investment authorities for the project’s duration extension. On the other hand, according to the guidance document of the Law on Investment, the investor must once again apply to extend the project’s duration at least six months before its expiration.
As a result, if the investor applies to extend the project’s duration six months before its expiry, there may not be enough time to extend the land use term. In practice, authorities prohibit carrying out either procedure too soon. In some cases, the investment authority even requires that the investor obtain approval to extend the land use term. However, by law, it is not possible to extend the land use term before extending the project’s duration.
(iii) Land compensation and clearance:
The Law on Land states that the designated company will receive the land only after making all compensation, support, and resettlement payments. However, the land authorities conduct the procedure for land compensation and clearance, so investors do not have control over the process. In most cases, the investors need to negotiate with the affected households before fully clearing and recovering the land. Foreign investors face challenges in implementing their projects of housing in Vietnam due to their lack of experience in dealing with local households in such situations. Moreover, other options, such as leasing land directly from households, are not available to foreign investors according to the law.
Second-home market
There is a need to develop a legal framework for second homes built on non-residential land in order to encourage further investment in this sector and address the following issues:
(i) Pink Book:
There should be a clear definition and understanding of the term “Pink Book” in relation to the duration of ownership rights (e.g., 50 years) and whether foreign owners can obtain Pink Books with a 50-year validity.
(ii) Business line requirements:
The Law on Real Estate Business should establish proper requirements for companies established under Vietnamese law to obtain the appropriate licenses for real estate business activities when they engage in long-term lease or sub-lease of non-residential units or participate in rental pool programs.
(iii) Management of second-homes:
In the case of second-homes built within branded residence projects on residential land, it is crucial that the legal framework clarifies whether these second-homes can be legally leased out on a daily basis for a minimum period of 10 to 20 years without violating the provisions of the Law on Housing.
Main issues of the new Draft Law on Land and Draft on Real estate Business
(i) Land use rights under the current Draft Law on Land:
While the Draft Law on Land defines “foreign-invested economic organizations” and “foreign organizations with diplomatic functions” as land users, it is unclear whether foreigners are permitted to use land in Vietnam. It is important to note that, according to the Law on Housing, foreigners are allowed to own houses in Vietnam, but the purchase or sale of houses must be associated with land use rights.
Therefore, if foreigners are not explicitly defined as land users in the Draft Law on Land, they may face difficulties in exercising their rights concerning house ownership in Vietnam. To enhance consistency between housing and land regulations, it is suggested that “foreigners” be included as a category of land users in the new Law on Land. This will also attract foreign individuals to engage in the trade and ownership of new types of housing or real estate, such as condotels, tourism villas, resort villas, bungalows, officetels, and shophouses.
(ii) One-time payment for land lease:
The Draft Law on Land stipulates two cases where a one-time rental payment is allowed:
+ agricultural production, forestry, aquaculture, or salt-making projects, and
+ land in industrial zones, industrial clusters, processing zones, and hi-tech zones.
For all other cases, annual payments are applicable for rental payments. Consequently, only projects falling under these two cases can utilize their land use right as collateral for mortgage purposes. New projects that do not qualify for one-time rental payment will encounter financial difficulties since they cannot mortgage or transfer their land use rights. Additionally, this provision conflicts with the proposed amendment to the Law on Real Estate Business, which requires developers to lease land from the State with a one-time land rental payment in order to sell future properties (such as condotels and officetels).
(iii) Rights of foreign-invested enterprises:
According to the Draft Law on Real Estate Business, foreign-invested enterprises are no longer allowed to invest in sub-leasing land within industrial parks, industrial clusters, hi-tech zones, and economic zones. Previously, this right granted to foreign-invested enterprises served as the foundation for investment in projects involving the leasing of warehouses and factories. The removal of this right will have a significant impact on business activities. Furthermore, the Draft Law on Real Estate Business does not include explicit transitional provisions for current and active investors. Moreover, the elimination of the subleasing right also contradicts the right granted to foreign investors under the Draft Law on Land to “lease assets under their ownership attached to land.”
Conclusion
In conclusion, the current issues surrounding land, housing, and real estate in Vietnam present challenges for investors and businesses seeking to establish themselves in the country. The complex and evolving regulatory environment, coupled with issues such as land disputes, limited availability of affordable housing, and fluctuations in property prices, require a comprehensive understanding of the local market and careful navigation of legal and bureaucratic processes. However, despite these challenges, Vietnam continues to offer promising opportunities for investment and business growth, driven by its robust economy, young and dynamic population, and ongoing efforts by the government to address these issues and create a favorable business climate. With proper research, strategic planning, and collaboration with local partners, investors and businesses can navigate and thrive in the Vietnamese market while contributing to the development of the country’s real estate sector.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn