Clear real estate ownership rules to benefit all players
Clear real estate ownership rules to benefit all players
Vietnam has gained remarkable achievements in economic development thanks to the promotion of international economic integration and active participation in free trade agreements. Doan Van Binh, vice president of the Vietnam Real Estate Association, analyses improving the law on real estate ownership by foreigners in the context of implementing such deals.
Participation in free trade agreements (FTAs) has had a great impact on the development of Vietnam’s real estate market.
They can impact the market in different aspects. Such agreements will create many opportunities for industrial zone (IZ) real estate, followed by related segments such as residential areas for experts, and tourism property serving domestic and international visitors.
According to many experts, when joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), many foreign investors will come to Vietnam to expand their business activities because they want to utilise the competitive and abundant labour force and especially the preferential treatment of origin under the provisions of the CPTPP to access a larger market.
One of the top options for building a factory is the land in IZs because these are invested land with full infrastructure and utilities.
The foreign ventures increase not only helps IZ real estate flourish but also leads to an increase in other related segments and services, such as housing for experts, workers, tourism, and entertainment and shopping centres.
For industrial land and warehouses, the CPTPP will boost investment in Vietnam, especially from major importing countries such as the United States and Japan. US companies are likely to focus on industrial land in the southern provinces of Vietnam, where some large textile factories are located.
In addition, businesses have factories in Asian countries and territories such as Japan, South Korea, Thailand, and Taiwan will move to do business in Vietnam to enjoy the attractive tax rates and large market of FTAs.
This will further increase the demand for land, warehouses, and factories in IZs. The biggest beneficiaries are investors, who have gone ahead and owned IZs and port clusters with low-priced land in the past.
In newly generated FTAs, Vietnam’s commitments on foreigners’ rights to real estate in Vietnam are basically consistent with current legal regulations.
For example, the EU-Vietnam Free Trade Agreement clearly defines that foreign organisations and individuals can only lease land for a term consistent with the term of the project, but not exceeding 50 years. Meanwhile, the CPTPP provides more specific provisions on the rights of foreign enterprises to residential and commercial real estate in accordance with the provisions of the current Law on Real Estate Business.
To seize the opportunities brought by FTAs to meet the increasing demand of foreigners for real estate ownership in Vietnam and attract large investment resources to promote the development of the market, especially tourism products, we need to continuously improve regulations on foreign ownership, especially on the basis of learning experiences from other countries.
More institutional openness in the real estate sector is also an important solution to revive the economy.
Improving legality for foreigners
Clause 2, Article 14 of the Law on Real Estate Business stipulates that “Overseas Vietnamese, foreign organisations, and individuals may rent all kinds of real estate for use, buy, rent or lease-purchase houses in accordance with the law on housing”.
Thus, Vietnamese law strictly regulates the scope and conditions of business and ownership of real estate in Vietnam for foreign individuals and organisations.
In particular, foreign individuals are only allowed to own houses, but not other products such as tourism property. The ownership of houses by foreigners is limited to housing types (apartments and individual houses in housing construction projects), the location of the project, and the number of properties owned in each area.
On the basis of current legal regulations and experiences in some other countries, we propose some solutions to improve the law on foreign real estate ownership.
First is to develop a Vietnam second home policy, granting immigrant visas with a term equal to the duration of real estate ownership for foreigners buying in Vietnam.
Secondly, the conditions for foreigners to own real estate should be more open. According to current regulations, foreigners are only allowed to buy houses, and not other types such as in tourism, while the actual demand of foreigners for this type of product is very high.
In addition, allowing foreigners to buy tourist property will contribute to attracting large capital to invest in the sector that can still be managed by regulations on conditions and procedures for foreigners to buy, similar to regulations for houses.
Recognised in law
The third solution is to synchronously amend the provisions of the land law with the regulations on real estate ownership of foreigners.
According to the 2014 Law on Housing, foreign individuals are allowed to buy and own individual houses including villas and town houses in housing construction projects. However, according to the Law on Real Estate Business 2014, the purchase and sale of houses and construction works must be associated with land use rights.
In fact, for individual houses in housing projects, the selling price of the house under the purchase and sale contract signed between the investor and the buyers has included the value of land use rights already, which means that the home buyer must have the right to use the land related to the house.
However, the 2013 Law on Land had not recorded house ownership associated with land use rights of foreigners eligible to own houses.
The above provisions have led to many inconsistent interpretations and applications. We consider this to be an inadequacy and lack of synchronisation between the three laws, and the current draft law on land has not solved this shortcoming.
Foreigners should be recognised as one of the land users in accordance with the Land Law. The full recognition of the rights of foreign organisations and individuals to purchase houses and construction works (including the recognition of land use rights) will create conditions to pull in foreigners to buy houses, facilitating socioeconomic development and improving foreign investment cash flow into Vietnam.
The fourth aspect is to continue to review and complete legal regulations on the real estate market, especially the new types (smart cities, tourism property, wellness property, condotels, officetels, and homestays) in line with international practices.
Fifth is to continue to study the establishment of a number of special administrative-economic units or establish a special economic zone to experiment with institutions and create new impetus for socioeconomic development, including an open policy on real estate ownership by foreigners.
While FTAs have opened up many new development opportunities for Vietnam, in the context of expanding international integration, it is necessary to open the door to foreigners on real estate ownership policies. As foreigners know more about Vietnam, they will come to learn about opportunities and when they see an equal playground with fair rules, they will be more likely to come.
Improving the laws on housing, land, and real estate related to foreign ownership should be considered in the process of amending and perfecting important laws.
