Last year, a revised Land Law passed Vietnam’s National Assembly. This revised law has the potential to have a huge impact on Vietnam’s land market and could speed up foreign-invested projects considerably. With this in mind, this cheat sheet runs through the key changes in the new Land Law and how this might impact foreign firms doing business in Vietnam.
It clarifies what a foreign-invested enterprise is.
The term foreign-invested enterprise has been redefined in the new Land Law 2024. Per article 23, it now only refers to foreign firms that have been through establishment procedures for foreign investment outlined in the Law on Investment.
Essentially, if an enterprise is 100 percent foreign-owned then per the Law on Investment it will need to apply for an Investment Registration Certificate–or an IRC. If it is a joint venture with a domestic firm it will not need an IRC. The former, under the Land Law, is considered a foreign-invested enterprise; the latter, is not.
Box 1: The current state of Vietnam’s real estate market recovery
At the beginning of 2023, construction work on buildings in Vietnam was slowly winding down as the real estate industry ground to a halt. Hard hats were hung up and cranes ten stories high fell dormant leaving the cement shells of unfinished residential towers standing dark and empty–cold reminders that Vietnam’s real estate market was not in good shape.
This was due to a number of factors but in short, the Evergrande crisis in China in 2022, had led Vietnam to take a long hard look at its own real estate industry, and what it found was not good. The misuse of investor funds, particularly those acquired through the bond market, was rife, and a number of real estate firms were grossly over-leveraged. These revelations then went on to spook investors and consequently, the market took a sizable downturn…
Read more: Vietnam’s Real Estate Market Recovery 2024: Unpacked
It limits lump sum payments for land use.
In the past, it was possible to pay land rent for the entire term of a lease in one lump sum and this would give the leasee certain additional rights. For example, they could mortgage or transfer the land to someone else. The alternative was to pay annually but forgo the ability to mortgage or transfer the land.
Under the new Land Law, the ability to pay for land in one lump sum will be restricted to agricultural, forestry, and aquaculture projects; industrial park projects; commercial land used for tourism or office purposes; and social housing projects whereby the developed real estate is made available for lease.
It allows land prices to move more freely.
The new Land Law will remove complex land pricing regulations that have seen land prices often out of step with their actual market value. Specifically, under the current Land Law, a land price is set every five years. Using this base-price local governments apply a coefficient to determine the price of land.
This has been problematic in the past in the sense that land values have often increased faster than the centrally set price and, believing their land to be worth more, landowners have refused to sell. This has seen a broad number of projects, particularly infrastructure projects, delayed.
Under the new Land Law, the five-year, centrally determined price will be done away with and the base-price for land will instead be set by local governments each year. This will likely see land cost more but also land purchases and ownership transfers take place much faster.
Box 2: Investing in real estate projects in Vietnam
Investing in real estate projects in Vietnam offers significant opportunities for foreign firms, driven by the country’s economic growth, urbanisation, and rising demand for residential, commercial, and industrial spaces. However, navigating the market requires a thorough understanding of local regulations, investment structures, and cultural nuances.
Read more: Investing in Real Estate Projects in Vietnam for Foreign Firms 2024
Overseas Vietnamese can own real estate in Vietnam.
Under Article 44 of the Land Law 2024, Vietnamese living abroad are permitted to own properties in Vietnam. This was not defined in the outgoing iteration of the law.
Vietnamese real estate firms have said they are expecting overseas Vietnamese, in light of this change in the law, to boost the local real estate market. This may, however, be wishful thinking.
It is already quite common for overseas Vietnamese to invest in real estate in Vietnam. Generally, if they cannot acquire property in their own name they will do so through a family member still living in the country. In this context, it’s not clear that when the new law comes into effect this part of it will make all that much of a difference.
Land disputes can be settled through arbitration.
Under the Land Law 2013, land disputes can only settled through the courts. When the new Land Law comes into effect, parties to a land dispute will also have the option of accessing an arbitration tribunal. This should free up the courts to focus on other matters and will also mean that resolutions may be reached faster.
Box 3: Starting a real estate business in Vietnam
Starting a real estate business in Vietnam presents many opportunities, as the country’s economic growth and rising incomes are fueling demand for both commercial and residential properties. However, entering the Vietnamese real estate market requires a deep understanding of the country’s business environment, real estate culture, and the regulatory landscape.
Read more: How to Start a Real Estate Business in Vietnam: Ultimate Guide 2024
What’s next?
The bulk of the new Land Law was supposed to go into effect at the start of 2025. That said, the government submitted to the National Assembly earlier this week that the start date should be moved up to July 1 of this year. At the time of writing, this was yet to be approved but most submissions by the government to the National Assembly generally are.
This law also often functions in concert with the Law on Housing and Vietnam’s Law on Housing.
All of that said, Vietnam’s regulatory environment is prone to change quickly and there will likely be a number of circulars issued in the near future to guide the implementation of the Land Law 2024. With this in mind, parties keen to be kept abreast of these developments should make sure to subscribe to the-shiv.