Clarity being offered through changes to nation’s land and real estate legislation

February 08, 2024 | 09:00
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The National Assembly has approved the amended Law on Land after lengthy consideration. Raymond Mallon, an independent economic consultant, analyses how will the anticipated revisions toed legislation governing land and real estate will could impact on investors and owners in Vietnam.

Strengthening systems for managing and administrating land use rights in Vietnam is an important concern for society, households, and businesses. Households and firms need access to land and/or a building real estate to live, to raise families, and to conduct business.

Clarity being offered through changes to nation’s land and real estate legislation
Raymond Mallon, an independent economic consultant

Land use rights are the most valuable economic resource of many households and businesses. Returning to household farms can be the most important form of social protection for rural persons. Land use rights also impact significantly on the public budget and the economy.

Clarity and transparency in institutional arrangements are essential for the effective and efficient management of national land resources. Effective property rights can help protect households, while also unlocking national capital for investment in development. An efficient land market should help households and firms secure finance for new investments and facilitate the allocation of land to productive uses.

The amended Land Law, to come into full effect from January 2025, is expected to clarify the rights and interests of land users, and regulate transactions and certification of land use rights. Legislation covers property rights for investors, Vietnamese citizens, and overseas Vietnamese, including specific policies targeting ethnic minorities. Amendments decentralise land management tasks, such as land use planning and zoning, and pricing, from the central to provincial levels and clarifies when land use rights must be allocated through bidding procedures. The changes are also expected to establish stronger foundations for improving, and making more readily accessible to the public, information on land management and administration. This should facilitate public monitoring of implementation of land policies.

Provisions on compulsory acquisition of land for public infrastructure (for example, for energy, transport, and urban infrastructure) and/or security interests are clarified with greater emphasis on market-based valuations. Valuations for compulsory acquisitions must ensure market principles, use specified methodologies and principles that are objective and transparent. Price guidelines will be updated annually by the provinces, instead of being set every five years.

Land use rights for manufacturing and services (in addition to agriculture and residential purposes) and for multiple uses will be recognised. Commercial interests will be able to acquire land directly on the open market for residential housing.

National impacts

Given the close links between land use and property development, the recent changes to the Law on Real Estate Business (LoREB) also need to be considered in assessing the impact of changes to the Land Law.

Arguably the most important potential outcomes of the amended legislation will be more efficient and effective use of land, and the more equitable protection of ownership of land use rights. By reducing restrictions on transferring using land to more productive uses, reforms should also facilitate accelerated economic restructuring.

Clearer and more transparent rules on compulsory acquisition should help in accelerating public infrastructure development and help lessen public disquiet about past inequities in some compulsory land acquisitions.

More transparent and equitable systems for land use planning and rezoning, and for compulsory acquisition of land use rights, should reduce risks and opportunities for corruption and help ensure that households and less connected persons are in a better position to maximise returns for their land. For example, farmers should get closer to market price for agricultural land when transferred to other purposes.

Procedures for transferring titles to real estate projects are to be streamlined and better regulated. Property developers will be subject to more stringent public disclosure requirements.

These reforms should reduce the risks faced by households and firms buying or leasing accommodation and other facilities developed on such land, and help boost investor returns by increasing demand for development properties.

Investors paying annual rents for land will be allowed to transfer and mortgage land and assets to access finance. Streamlined provisions for resolving land disputes and for transferring land use rights should ensure more efficient use of land as collateral for financing development projects and should help in securing financing for projects.

Potential benefits

Foreign investors will benefit from the impact of the above reforms in increasing national business investment and stimulating the development of a stronger domestic private sector that is better placed to partner with foreign investors as suppliers, service providers or business partners.

A stronger domestic business sector should widen the options for foreign investors in sourcing cost-effective inputs to global value chains.

Legislative reforms clarify that foreign-invested organisations are permitted to develop infrastructure via real estate projects to transfer, lease, sub-lease land use right having ready-built infrastructure. Past ambiguities about the rights of foreign investors to rent land and infrastructure needed for their business activities should be clarified.

This could help entice increased investments in high technology, industry and agriculture parks or zones, industry clusters, in manufacturing, and in trade, tourism, healthcare, education, research and other services.

The definition of foreign invested organisations will be more consistent with the Law on Investment and includes all wholly foreign owned enterprises, joint ventures, and enterprises with foreign shareholders, regardless of their equity share.

Establishing a clearer and more transparent system for administering land use rights will reduce opportunities for corruption and, thus, help attract quality foreign investment. Reduced uncertainty should help entice investors to make the longer-term capital investments that can help Vietnam to move up the development ladder.

The introduction of formal options for multiple land use should, for example, increase the attractiveness of investing in solar power by using the required land to also develop agriculture. The provisions on rights to utilise maritime areas will also help in attracting investment in the marine economy.

Overseas Vietnamese will have the right to engage in real estate business, including buying, renting, or leasing residential and construction properties, akin to the rights of Vietnamese citizens. This could be an important additional stimulus.

Amendments to the Land Law and the LoREB should increase domestic and foreign investment, better protect the owners of land use rights, reduce opportunities for corruption, and facilitate economic restructuring. This should help boost total factor productivity growth and improve living standards, while better regulations can also help to contribute to more sustainable utilisation of land resources.

While the recent legal amendments have considerable potential to boost living standards, realising this potential requires the development and implementation of supporting regulations and institutions. The government has directed ministries and other agencies to finalise the considerable detail required in these regulations by 2025.

Strong institutional commitment to finalise implementing arrangements is needed to realise the potential benefits from recent reforms. Some institutions may resist change. Government agencies will need to continue working with stakeholders to strengthen relevant institutions and to identify and address ongoing and emerging obstacles to effective land management and administration.

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By Raymond Mallon

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