Fresh land law equals a brand new drive for growth

Land is the government’s primary source of revenue, and the focus is how to use such top resource effectively. A decade ago, the Land Law 2013 was hailed as the tool to unlock land potential by mobilising different social resources for economic development.

Nguyen Lan Phuong, partner, Baker McKenzie

However, the Land Law 2013’s effectiveness has waned; commercial housing projects can no longer take off because of the land price determination and clearance issues; industrial ventures get stuck in the overlapping area of project bidding and land auctioning requirements; and the list goes on.

Realising the urgency of addressing those critical and burning issues, the National Assembly adopted the new Land Law during its extraordinary meeting last week. The new Land Law will take effect from 2025, and together with the Real Estate Business Law and the Housing Law, the real estate market is set to turn a new page.

The business and investment landscape is also expected to change for the better, when these laws will work in a more streamlined manner with the Investment Law 2020 and the Bidding Law 2023.

The most noteworthy point of the Land Law 2024 may easily be the list of circumstances where land is revoked via an administrative decision of the government for socioeconomic development purposes, national security and defence, and other general-people serving purposes.

Upon careful deliberation, the National Assembly voted to exclude commercial housing projects from this list of revocable land uses. This step is viewed as needed to avoid further conflicts with the legitimate land users (who have land use rights), who may now feel more reassured that their land use rights would not be traded for commercial housing interests.

While protecting individual rights, the Land Law also recognises the need to prioritise certain public interests. Power projects, for example, are among the cases that the government may retrieve current land use rights and lease such land use rights to power schemes in order to ensure the energy security of the country.

Still on commercial housing projects, developers are now allowed to develop them on the basis that they either already acquired the land with the residential use purpose (this can be achieved if a part or the entirety of the land has the residential use purpose), or they can only take transfer of the residential land following their approvals. This is aimed at decreasing the current “waiting zoning” situation, where developers have obtained approvals for a commercial housing project.

However, such implementation depends entirely on the state’s compensation to land users for clearance conversion of the use of the relevant land, which is not achievable in a timely manner but at the same time is inhibiting the legitimate use rights of the rightful current land users.

The other outstanding point of the Land Law is the significant shift in land pricing and land price table. The inflexible 5-year land price table under the previous law has been dealt with. From 2026 onwards, there will be the annual land price table that is proposed in the previous year and is used for the next year to serve as the basis for fulfilling the payment obligations to the state budget.

The annual land price table, and the land price for individual projects, will follow four specific calculation methods: comparison, income, discounted cash flow, and coefficient, with priority given to the comparison method. The comparison will be done based on at least three transactions of land transfer or land auctioning. This involves the same use purposes and other similar criteria, and with inputs from real estate national database, and other sources, as provided under the new law, in order to reach the land price for a particular land lot.

Other methods can be used; for example, the popular discounted cash flow method for land valuation applies only when the comparison and the income methods are not suitable. This is expected to create land prices that are closest to the market movements.

What we find welcoming to real estate developers is that the new Land Law allows flexibility for projects that have been properly approved under relevant laws both before and after July 2014, depending on the legal and compliance status of the project, to continue receiving land from the government without going through an auctioning method in most cases. This may help to clear the impasse that many of these long-approved ventures are facing.

Developers of projects for which land would be revoked by the state from the current land users now have the option under the law to directly negotiate with the current land users in order to take transfer of the land, instead of waiting for the state to revoke the land and lease it to them.

This helps both ways; the government would not have to spend its finite resources to clear the land, whereas the owners of the projects may save time by working directly with current land users. The question may be how the government would supervise the land transfer under this option.

With all the new changes, the new Land Law is expected to stand the test of time for the next decade and to create a stable, fair, and facilitating environment for land use for the people, the state, and the enterprises.

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