- The Government is currently in the process of drafting Decrees to guide the implementation of the 2024 Land Law, ensuring their synchronized effectiveness on August 1, 2024, as stipulated by the Amended Law on Four Laws recently adopted at the 7th session of the 15th National Assembly. Notably, the draft Decree on land use fees and land rental fees (Draft Decree) plays a particularly crucial role in promoting and orienting the development of businesses. However, under the current provisions of the Draft Decree, the calculation of land use fees during adjustments to detailed planning raises several issues that require careful review and impact assessment for various cases, especially for manufacturing enterprises, to ensure the goal of encouraging businesses to reinvest and expand production.
- As for the real estate market, Vietnamese real estate enterprises have weathered 2023 with a tremendous 1000% effort! Reflecting on the period since the end of the COVID-19 pandemic, one can observe that never before has the Vietnamese real estate market faced so many simultaneous challenges. Despite significant support from both central and local government authorities, enterprises alone have been unable to overcome all obstacles, particularly those related to legal and policy issues. Thus, to aid the market in recovering and developing in a safe, healthy, and sustainable manner, it is essential to frankly evaluate both the strengths and weaknesses of past real estate policies and to make appropriate, coordinated, and effective policy adjustments.
The deadlock facing enterprises and the market
Current legal challenges mostly stem from regulations introduced between 2015 and the present. During this period, the real estate market has been governed by laws enacted in 2013-2014, including the Land Law, Investment Law, Housing Law, and Real Estate Business Law. The simultaneous and abrupt introduction of these legal changes has led to compliance challenges for enterprises, resulting in “legal conflicts” and “institutional fragmentation”. Different ministries have issued various legal documents without coordinating with other relevant ministries, leading to inconsistent interpretations and applications of the law at the local level. For instance, Decree 43/2014/ND-CP, which details the implementation of certain provisions of the Land Law and is overseen by the Ministry of Natural Resources and Environment, has already been amended by six different decrees. This lack of consistency has caused situations where enterprises fully comply with local government guidance during project implementation, only to be told later during post-audits by central authorities that they violated regulations, leaving projects in limbo.
To “rescue” the market, state management agencies have actively supported enterprises through various task forces, pushing public administration to operate at full capacity. However, these efforts have not fully addressed the sluggishness of the administrative apparatus, as many issues are beyond the control of local officials, despite their willingness to support businesses. Reports from both central and local task forces have documented numerous legal obstacles hindering real estate projects across the country, with most of these issues rooted in unsuitable legal policies. These challenges exceed the capacity of businesses and the market to resolve independently and necessitate support from policymakers. The deadlock in the market and its underlying causes can be summarized as below:
- Unclear and inconsistent project implementation mechanisms
Before 2015, real estate projects were characterized by the ability to handle most administrative procedures separately, under the Land Law 2003, Housing Law 2005, and Real Estate Business Law 2006. While this separation accelerated project timelines, it also revealed shortcomings, such as some projects commencing real estate transactions before fulfilling all legal obligations, thereby passing the risks onto buyers. Today, many cases exist where developers have not completed their obligations to the State, yet projects have been in use for years, preventing residents from obtaining land use right certificates and leading to prolonged complaints and lawsuits in various localities. The tightening of regulations in recent years has exposed the vulnerabilities of real estate enterprises.
Many projects have stalled due to incomplete preliminary procedures, especially those related to land auctioning, bidding for project developers, and other regulations that ensure equal access to land resources for investors, as outlined in Resolution 19-NQ/TW of the Party Central Committee in 2012. In some areas, outdated practices persist, leading to project implementation that does not comply with current regulations. While post-audit measures can assign responsibility to individuals and organizations to promote legal compliance, this inadvertently creates difficulties for enterprises and, particularly, for residents who have “unintentionally” purchased legally incomplete projects. From the perspective of homebuyers, it is unreasonable to expect them to bear responsibility for buying real estate when even developers may not be fully aware of their legal violations.
- Disrupted planning and the situation of spontaneous subdivision and sale of land occur in many places
Planning is a crucial foundation for development orientation. However, prior to the introduction of the Planning Law in 2017, spontaneous project development in many localities led to significant challenges for sustainable and stable growth. Poor planning management resulted in overlapping and conflicting plans within the same territory, causing confusion for enterprises during project implementation. The post-2017 period, governed by the Planning Law, requires projects to follow a top-down implementation process, which has led to delays as local authorities struggle with their first-time provincial planning efforts. Until higher-level plans are approved, lower-level plans from real estate enterprises cannot proceed, further delaying project timelines. Recent resolutions by the National Assembly and the Government have sought to unify planning approvals, allowing higher-priority plans to be approved first, with lower-level plans allowed to adjust accordingly. As many provinces have now approved their plans, new projects can proceed more smoothly.
The difficulties faced by real estate projects in completing procedures have indirectly contributed to a scarcity of market supply, which, in turn, has fueled unregulated plot division and land sales. This has been facilitated by the donation of land for road construction, rampant subdivision of agricultural land, and the lack of accompanying social and technical infrastructure planning. Several factors contribute to this situation, such as inconsistent implementation of planning, where land allocated for residential use has not been accompanied by construction planning. This has allowed some individuals to exploit policies on land donation for road construction and the leniency of local officials to subdivide agricultural land extensively. These unregulated developments lack basic infrastructure, leading to spontaneous residential areas without essential amenities. When construction plans are eventually overlaid, land plots that have been legally certified for residential use may not be suitable for construction, resulting in unresolved land use conflicts. Additionally, some individuals falsely advertise these plots as legitimate “projects”, raising illegal capital from the public. When local authorities intervene and halt these activities, affected residents lodge complaints and lawsuits, with some cases escalating to criminal investigations, as seen in the high-profile case of Nguyen Thai Luyen and Alibaba Real Estate Company.
- Restoring market confidence
In recent years, a series of real estate-related cases have been brought to light by investigative and judicial authorities, bolstering public confidence in the judiciary. However, lingering doubts remain as to whether all violations have been exposed or whether these are merely the tip of the iceberg. Concerns persist regarding the legal certainty of upcoming real estate projects and whether buyers can be assured of their property rights, particularly the issuance of land use right certificates upon payment completion.
Moreover, legal challenges have fostered a sense of inertia within the administrative apparatus, both at the central and local levels. Decisions by officials to support enterprises in real estate project implementation are fraught with risks during post-audits, primarily due to differing interpretations of unclear and inconsistent legal regulations. For example, policies on land valuation, which are directly linked to the violations of officials, aim to align land prices with market values. However, from a different perspective, land prices fluctuate with the market, meaning they can increase or decrease. The question arises whether the State would reduce land use fees for enterprises if market prices fall, posing significant risks for decision-makers.
“A new dawn” in policy
The aforementioned legal challenges highlight the need for comprehensive changes to the entire legal framework governing the real estate market. With the goal of developing a safe, healthy, and sustainable real estate market, policymakers have made significant adjustments by enacting a series of legal documents that directly or indirectly impact the real estate sector. These include the Land Law, Housing Law, Real Estate Business Law, and laws related to real estate finance, such as the amended Law on Credit Institutions, the amended Law on Bidding, and the amended Law on Property Auction. While these new laws contain many significant changes, they can be summarized under the following major policy directions:
- Tightening access to land for commercial housing projects but expanding access for social housing projects
The Land Law 2024 has institutionalized the principles of Resolution 18-NQ/TW of the Party Central Committee in 2022, primarily by mandating land allocation through land auctions and bidding for land-use projects. The law also clarifies the circumstances under which investors are allowed to implement real estate projects through land acquisition, land contribution for project development, and other mechanisms. These provisions will help stakeholders ensure that their land access methods comply with legal regulations, thereby guiding them in appropriately implementing their projects.
The Land Law 2024 also accelerates the land valuation process by making the State responsible for annually issuing updated land price lists for each locality. This will simplify the determination of financial obligations related to land, reducing the burden on officials responsible for land valuation. Additionally, the Land Law 2024 introduces new and improved land-use forms not present in the old law, such as land allocation for villas, resort-apartment-office projects, multi-purpose land use, and other specific land-use types.
For priority projects such as social housing, the Land Law 2024 allows enterprises to use a wider range of land resources at their disposal for project implementation. The new regulations also streamline the process by allowing land to be allocated for social housing projects without land-use fees, rather than the previous practice of valuing land and then waiving the fees. Additionally, the new rules require local governments to identify suitable land resources based on housing development plans and integrate them into relevant planning levels. Enterprises will use approved plans to identify and develop social housing projects on suitable land resources. Furthermore, Land Law 2024 and Housing Law 2023 allow investors to use social housing stock within projects for resettlement, facilitating on-site compensation and resettlement for affected residents.
- Professionalizing real estate project development and eliminating unregulated individual participation
The Real Estate Business Law 2023 and Housing Law 2023 have effectively addressed the issues within the real estate market, most notably by tightening the conditions for real estate to be introduced into business. Previously, without stringent regulations, many real estate properties that had not completed the necessary legal procedures and did not meet the required conditions for business were still being traded. This situation shifted the risks onto real estate buyers, leading to prolonged disputes in many projects, which in turn affected public order. The new laws have refined the mechanisms for investors to raise capital. For example, the old law stipulated four methods of capital mobilization for commercial housing projects, while the new law clearly divides these into five distinct cases and introduces the method of raising capital through deposits. Regulations on capital mobilization have also been harmonized in the Law on Credit Institutions and the Decree on Corporate Bond Issuance, which stipulates the legal conditions of a project that must be met to raise capital through these means. These changes are intended to increase barriers to entry in the real estate market, thereby excluding underqualified investors and promoting the sustainable development of the real estate market.
The Real Estate Business Law 2023 also legalizes the easing of conditions for transferring entire or partial real estate projects. This method is an excellent way to mobilize social resources for the comprehensive development of projects, particularly large-scale ones. Real estate developers are not necessarily companies in education, healthcare, or hospitality; thus, allowing the transfer of component projects to specialized investors will accelerate the overall progress of the project and maximize land resources. Clear regulations will encourage businesses to proactively comply with regulations on project transfers, thereby avoiding tax losses through the transfer of capital contributions.
Furthermore, the Real Estate Business Law 2023 tightens regulations on real estate brokerage organizations and individuals. In countries with developed real estate markets, there is a team of professional brokerage companies and individuals who assist customers in making informed investment decisions, helping them avoid fraudulent or legally uncertain projects. In recent years, the distortions in the market have been partly fueled by unethical real estate brokers who either knew or deliberately ignored the risks associated with certain projects but continued to sell them in pursuit of commission fees. To better regulate brokerage activities, the new law clarifies the responsibilities of real estate brokers in selling substandard products. If a project turns out to be fraudulent, these brokers could face criminal prosecution. Additionally, individual brokers are no longer permitted to operate independently but must work within a company, which will enhance the accountability of brokerage organizations in selling real estate products and facilitate state management agencies in regulating the market.
A few observations
- Reflecting on the process of developing current legal documents governing the real estate market, one notable point is the careful construction of the new laws. If the impacts of policies have not been fully assessed or legal conflicts have not been resolved, the enactment of new laws is not rushed. This cautious approach is a positive sign. “Hasty” policy decisions could cause us to miss development opportunities. The challenges of the past demonstrate that rushed policymaking can lead to significant consequences, affecting not only businesses and citizens but also Vietnam’s investment environment.
- As we look back on 2023, with the positive signals from new legal policies, we can confidently anticipate a new phase of development in the real estate market. The year 2024 will be pivotal for investors and other stakeholders to make thorough preparations for the upcoming period. With the legal regulations now in place, most of the challenges previously facing the real estate market have been addressed. Given the current low interest rates, 2024 is expected to be a vibrant year for M&A activities. At the same time, with support from government agencies, the development of social housing projects and affordable housing will likely see significant growth, thereby helping to balance the supply in a market that has been skewed towards high-end projects. Essentially, from now until January 1, 2025, stakeholders can assess and determine the prospects of their projects, enabling them to devise appropriate business plans. If issues remain unresolved, this serves as an indicator for investors to either scale back or shift to other business strategies.
Lawyer. Tran Dai Nghia - Investment Project Legal Policy Expert