Revised laws shed light on real estate conditions

They reflect the vigilant engagement and endeavours of the state in this sector and aim to streamline legal processes, resolve conflicts between associated laws, and mitigate the challenges faced by developers and the real estate sector.

There are many notable changes made to the law, and the decision to eliminate fixed land pricing and use land prices based on market principles is the most significant modification. The new Land Law for the first time has formalised in the law the land valuation methods, with clear conditions to apply each method.

Although this change potentially frees up land via market forces, foreign businesses should anticipate that the remuneration for land acquisition may increase as land prices are dramatically altered. Thus, they have to prepare thoroughly and strategise risk prevention to adapt to the evolving market conditions promptly.

Additionally, it is permissible to convert from a lump-sum lease to an annual lease payment. However, an annual lease cannot be converted into a lump-sum lease, except in certain instances specified in the law. This change provides a more flexible option for foreign business operations with financial adaptability. International investors now have the ability to synchronise their payment schedules with their income flows, enhancing financial strategies when investing in Vietnam.

The new law also gives clear requirements for enterprises to repay any amount of land use fees that were initially waived or reduced when transferring land use rights to the next owners. Foreign investors should take it into consideration for financial planning during land use rights transfers to avoid negative consequences.

Agricultural land transfer is another important issue. Businesses now can get agricultural land for future development plans, which is prohibited in the current Land Law. Therefore, foreign businesses have more flexible options for their business operations, and they can accelerate the land clearance progress.

However, the risk of the sharp increase in agricultural land prices should be taken into careful consideration. Strategic planning and risk assessment are essential for foreign investors to diversify portfolios or explore alternative options.

In addition, land and asset mortgagee is now expanded to include not only Vietnam-based credit institutions but also other economic organisations and individuals. It helps foreign businesses access to more diversified capital sources.

Regarding the new rights of foreign-invested enterprises (FIEs) in land use right transfer, the new law allows the FIE to take the transfer of the land use right in industrial parks (IPs) while the current law imposes the restriction. This change provides more flexible and expedience for FIEs in taking the transfer of the land use right of land in IPs directly from the previous owner, resulting in favourable yield returns.

Finally, the annual land rent is applied stably for a 5-year period, which is seen as support for foreign businesses in forecasting activities.

To prepare for a next market movement, amid the transition period before changes to the law come into full effect, all investors can consider several steps.

The first is to stay up-to-date with the local regulatory landscape by monitoring news, government announcements, and industry publications. Engage with local experts, advisors, or legal counsel who can provide insights into the upcoming regulatory changes. They must gain understanding of the regulatory framework, including existing regulations and any upcoming changes. Research the political, economic, and legal landscape to assess potential risks and opportunities.

Conducting a regulatory impact assessment is important to evaluate the potential impact of the new regulations on your investment strategies, operations, and financials. Assess the risks, costs, and opportunities associated with compliance.

Also to be conducted is a thorough review of current investments within the market affected by the new regulations. Identify any potential non-compliance issues and evaluate the feasibility of adapting to the regulatory changes.

Before making new investments, conduct rigorous due diligence on the market, regulatory environment, and potential legal or operational risks. Evaluate the compatibility of your investment plans with the new regulations.

Establish relationships and engage in dialogue with local industry associations, government officials, and other relevant stakeholders. Seek their perspectives and insights on the new regulations to better understand the rationale behind the changes and potential challenges.

Investors should also engage with experienced local legal and financial experts who specialise in the target market to receive tailored guidance on regulatory compliance, tax implications, and other legal requirements. Their expertise will help ensure that investment strategies align with the new regulations.

Allocate sufficient time, budget, and personnel to effectively implement the compliance plan. Investors must ensure that they have the requisite expertise and capabilities internally or through external partners to navigate the regulatory changes smoothly.

However, they must be prepared for potential changes or updates to the regulations. Staying flexible in strategies and incorporating necessary adjustments as the regulatory landscape evolves is crucial.

By proactively preparing for new regulations, foreign investors can mitigate risks, maintain compliance, and position themselves for success in the target market.

The adoption of the revised Land Law in January was billed as one of the most important legislative tasks of the latest National Assembly. It will come into effect in January 2025 and should be viewed as a strengthening of the foundation underpinning the Real Estate Business Law and the Housing Law, both passed last November.

The implementation of Vietnam’s new Land Law, effective from next year, brings significant changes that will shape the landscape for real estate investors, particularly foreign investors, who must navigate these changes strategically.

Senior partner Duyen Ha Vo and senior associate Tram Dang of VILAF explore the potential implications of upcoming changes on land acquisitions of developers engaged in real estate, energy, and infrastructure projects.

The revised Land Law, which was passed at the 15th National Assembly’s fifth extraordinary session, holds great significance in the country’s political, socioeconomic life and national defence and security as well as has impacts on people from all walks of life and the business community.