The National Assembly passed the revised Land Law in its recently concluded session. David Lim, head of the Land Sub-group of the Vietnam Business Forum (VBF) and partner of ZICOlaw (Vietnam) takes an exclusive look for Vietnam Investment Review at the provisions of the revised Land Law and the implications for foreign investors in Vietnam.
We are pleased to see that after three sessions, the revised Land Law was passed by the National Assembly on November 29.
The revisions address some of the points that we have raised over time, but there remain issues which continue to be unresolved. As with all new laws, implementing decrees, circulars and regulations will be subsequently issued which will provide greater clarity on the intention and objectives of the revision.
We set out below our thoughts on the key changes affecting foreign investors based on the final draft of the Land Law which was debated prior to being passed as the approved version is yet to be released.
The use of out of date definitions has been a longstanding issue with the previous Land Law. As the other laws including the Law on Investments have been revised and revamped over time, the previous Land Law still maintained definitions which were increasingly confusing and led to inconsistencies in the implementation of the law.
We see for instance the use of unclear and overlapping definitions for foreign investors, domestic investors and joint ventures which has led to inconsistent interpretation of the law. We have for a long time discussed issues surrounding this with the drafters and were pleased to see more precise terms and definitions used. In this regard, we were pleased with our engagement with the drafters and note that the majority of the inaccurate definitions have been revised.
One of the issues that domestic and foreign investors alike struggle with relates to land pricing. We have consistently raised the importance of having clear and transparent procedures and processes for the determination of land prices. Many investors consider this to be the most important issue affecting real estate development today. Without clarity on land pricing, investors are unable to determine if a project is economically feasible.
Whilst land prices are to be determined according to market prices under the previous Land Law, the authorities had the right to re-determine the prices when the calculated price is different from the land use right assignment prices in normal market conditions. The implementation of this right was problematic as it led to unnecessary delays, while at the same time increasing the administrative burden on the authorities and created regulatory uncertainty for investors.
The final draft of the revised Land Law provides that price lists shall be updated every five years and the right to re-determine prices can be exercised only if the market price changes by more than 20 percent. There are also clearer provisions on how land prices will be determined.
We are pleased to see efforts made to address this issue, which has been a major source of difficulty faced by investors. We hope that the new provisions will be implemented consistently and completely to achieve this objective.
Rights of foreign entities
There has been an improvement in the revised Land Law with regards to foreign entities obtaining land rights from the state. The revised Land Law for the first time provides that land can be allocated to foreign entities which invest in residential housing projects for sale and lease. This is an important step towards removing procedural differences between the rights of domestic and foreign investors which was not necessary. It is a step in the right direction to level the playing field between domestic and foreign investors with regards to land acquisition.
The impact of this provision will only become evident when the provision is implemented. We are hopeful however, that this means that the differences between domestic and foreign entities are slowly being removed and it will result in more efficient use of land.
The revised Land Law has also expanded the circumstances whereby foreign investors will be compensated if the state recovers land from them. Under the previous Land Law, it was not clear if joint venture entities would be compensated. The revised Land Law now clearly states that compensation for recovery of land leased with a one-off payment would be extended to joint venture entities as well. This is a positive development and demonstrates that there is no intention to discriminate against foreign investors in this regard.
Land recovery for socio-economic development
For a while now, there has been a lot of discussion about the right of the state to recover land. This is clearly a very emotive subject since it involves balancing the rights of various parties. This issue has been debated quite extensively and many have expressed their views about this issue.
The revised Land Law provides that land may be recovered where such land recovery is for socio-economic development and in the national or public interest. The provision further states that policies for investment projects under this form of land recovery must be approved by Vietnam’s National Assembly, the prime minister or the provincial people’s councils.
Investment policies for projects of national importance must be approved by the National Assembly. Investment policies for projects for construction of industrial zones, processing-export areas, hi-tech zones, economic zones; new urban areas and projects funded by official development assistance (ODA) must be approved by the prime minister. Investment policies for projects for construction of new urban areas, new rural residential areas; upgrading of urban areas, rural residential areas; industrial clusters; concentrated areas for processing and production of agricultural, forest, aquatic products; projects developing protected forest land, specialised use forest land, etc. must be approved by provincial people’s councils.
It will be interesting to see how these requirements will be implemented by the authorities and to what extent it will affect the balance of preserving the rights of all interested parties.
Although the revised Land Law does not address all the comments and opinions from various sources, there has been a healthy level of debate regarding issues of great importance. We will need to wait regulations of the revised Land Law to fully understand how the new revisions will be applied. The hope is that the implementing regulations will be clear and consistent in their language and objectives to avoid difficulties faced with the previous Land Law.-VNA