A new property market cycle is beginning for Vietnam

January 31, 2024 | 10:39
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The new Land Law should promote market mechanisms, regulate interest groups, put people first, and minimise disparities between real estate businesses.

One of the prominent changes in the new law, to come into effect next year, is that organisations and individuals who lease land from the state with a one-off rental payment for the entire lease period can choose to switch to land leases in the form of annual land rental.

A new property market cycle is beginning for Vietnam
Nguyen Le Tram, senior associate, ASL LAW

Previously, the 2013 Land Law exclusively allowed businesses and individuals to switch from annual land rentals to a one-time payment for the entire rental duration, with no provision for the reverse.

This will allow businesses to reduce the financial burden during execution of investment ventures. Real estate prices will be adjusted to a more reasonable level, fostering a balance between the interests of buyers and sellers, grounding a more transparent and competitive market.

Undesirable practices such as businesses inflating project details to secure bank loans or improperly mobilising capital are anticipated to diminish. The change is likely to result in a more reasonable adjustment of real estate prices.

The second notable change is the addition of for determining land prices according to market price principles and the elimination of the concept of “land price framework” and the regulation on the “land price list”.

According to the revised law, the land price list will be established annually. The initial list will be published and applied from 2026, and subsequently adjusted from January 1 the following year.

According to the new law, land valuation must ensure some principles such as using the land valuation method according to market principles; complying with correct methods, order, and procedures for land; and ensuring honesty, objectivity, openness, and transparency.

This regulation will help solve the problem that land prices are inconsistent with reality and often lower than land prices on the market.

Removing the common land price framework and applying the method of determining land prices according to normal market prices will help reduce land rent disparities. Enterprises with abundant financial resources will have the basis to accelerate site clearance and project implementation.

A new property market cycle is beginning for Vietnam

Businesses also have the opportunity to improve the commercial price of the project. In addition, the nature of the 2024 Land Law takes puts individuals first.

People will receive worthy compensation and be guaranteed legal rights and benefits. This ensures the state’s recognition of individuals when they make contributions to the locality, region, and country.

For the change on the land price list, the aim is to align with market land prices. However, it is anticipated that this provision will also increase the workload for local authorities.

The outstanding change that cannot be ignored in the 2024 Land Law is that the state leases land by selecting investors through a bidding method for implementing projects.

Through the auction method to allocate land with land use fees collection, land prices will be clearly shown through bidding results, creating a public and transparent environment. In addition, bidding also creates conditions for businesses with thoughtful and wide experience and history of effective land use to have more opportunities to implement initiatives. Enterprises with weak resources or using land for speculative purposes will not be able to survive long term.

Enterprises with clear business projects, healthy finances, good real estate development capacity, and clean land funds will have more opportunities to access land. When these businesses are listed on the stock exchange, this will affect their business results and the stock market price.

However, there are still notable inadequacies in the regulations. First, when the land price bracket is removed and the land price list approach is used to determine market price, the state is required to prepare sufficient budget resources to ensure compensation.

This will inevitably create a huge pressure on the state budget. Charging land prices close to market prices can cause businesses’ land use costs to increase. Real estate prices are at risk of continuing to escalate. These are issues that require close attention. Besides this, the updated land price list will also increase the workload pressure on local authorities.

Second, regarding the regulation of land auctions, the policy has not handled the situation of land price differences between localities, especially as there are no sanctions to handle violations in determining land prices by auctions.

Third, with regarding determining land prices according to market price principles, when recovering land to build projects, the law should be designed according to each region, each project, and each land recovery. Some areas will rely on the market price to be adjusted, but there are some situations where land prices are decided by agreements among the relevant parties. In short, there needs to be a good operating mechanism to avoid complaints and lawsuits.

In addition, the land recovery mechanism must be soft and flexible. This means that projects that are in the development plan for the benefit of the nation should let the state - as a representative - recover the land.

If businesses control the transfer and negotiate with each other, it will be very difficult and prolong project implementation. However, there are also areas where the state doesn’t need to take over, so the transferee enterprise can negotiate on its own.

The 2024 Land Law aims to complete the land legal system under socialist-oriented market economic institutions in the context of international integration; resolve overlaps and problems; strengthen land management in terms of quality and economic value; and clarify the rights and interests of the state, land users, and investors.

The change that the 2024 Land Law will bring to society cannot be denied. Nonetheless, those who intend to join the Vietnamese property market still need more time to complete the legal framework from the implementation guidance documents to specifically assess the impact of the revised Land Law on the economy, especially real estate.

Land law updates offer grand real estate foundation Land law updates offer grand real estate foundation

The National Assembly has approved the revised Land Law, which will come into full effect next year.

By Le Tram

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