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Impact of the amended Land Law on the real estate market

Impact of the amended Land Law on the real estate market

Tuesday 06, 02 2024
New regulations on annual land price lists to keep close to the market will have a major impact on project implementation and profit margins of investors.

Changes in land price frames

The Land Law 2024 (amended) has been approved by the National Assembly, including 16 chapters and 260 articles, which will take effect from January 1, 2025. According to many experts and research units, removing the 5-year land price frame and clearly regulating land valuation methods are important points, greatly impacting the real estate market.

Previously, the Government was responsible for issuing a land price framework every 5 years for each type of land and each region. Then, localities use this framework as a basis for building land price lists.

In the revised Land Law, regulations on land price brackets are no longer mentioned. Instead, in Article 159, the land price list will be announced by the Provincial People's Committees for the first time on January 1, 2026 and will be responsible for amending and supplementing this price list annually. Basically, the new regulations will help the state's land price list approach the market price.

Changes in land price frames

The Vietnam Association of Realtors (VARS) believes that removing the land price bracket demonstrates the State's determination to maximally protect the legitimate rights and interests of the people, and also creates a favorable environment for a transparent and fair real estate market. The annual land price list also helps ensure a harmonious balance of interests between parties during the negotiation and site clearance process, thereby limiting disputes and helping the real estate market develop sustainably, according to VnDirect Securities Company.

The revised Land Law also stipulates 4 methods of valuation and specific determination of each use case including comparison, income, adjustment coefficient and surplus. In particular, the surplus - the method considered to be the most important and popular - has been retained. The balance method will be applied in cases where the land plot or land area to implement the project does not qualify for the comparison and income method but the total revenue and development costs of the project can be estimated.

Last year, some opinions proposed abandoning this widely applied land valuation method; Do not include land valuation methods in the Law. Previously, land valuation methods were specified in Decree 44 on land prices.

According to MB Securities Company (MBS), the above clear regulations will also speed up the progress of resolving land valuation problems - the biggest legal bottleneck for real estate businesses. This unit pointed out a number of projects that will be cleared when the law takes effect such as Izumi City (Nam Long), Gem Riverside (Dat Xanh). Industrial real estate also benefits when the new law creates conditions to speed up the process of converting land use purposes.

Impacts on real estate prices

However, there are still some concerns with the new regulations. VARS believes that removing the land price framework to determine the market price may require the State to prepare sufficient budget resources to ensure liberation and compensation. This unit also raised the question that when land prices are close to market prices, it will cause businesses’ land use costs to increase and real estate prices continue to escalate.

Impacts on real estate prices

MBS also commented that adjusting the land price list will also increase the land use costs of businesses, affecting the gross profit margin of investors. However, according to MBS, the increase will depend on the law’s guiding circular regulating the adjustment coefficient for each region and the level of land price adjustment in localities.

Meanwhile, Chairman of the Board of Directors of GP Invest Nguyen Quoc Hiep is concerned about whether the one-year land price list’s application period is too short, because it could cause both businesses and local authorities to panic. Once they have finished setting prices for this year, they must immediately continue to form another price list for next year (land price list will be issued on January 1 of each year).

According to Mr. Hiep, another important point in this law specifically regulates projects that are allocated land through auctions of land use rights or bidding to select investors in Articles 125 and 126. In particular, Article 126 stipulates that the winning investor is responsible for advancing capital to carry out compensation, support, and resettlement at the request of state agencies and must complete these tasks within 36 months from the date of issuance of the decision recognizing the winning bid.

Ho Chi Minh City Real Estate Association (HoREA) commented that the above regulations ensure harmony of interests of the three relevant entities. Land owners are compensated at market value, there is no longer a situation where investors are “backed” to buy people’s land cheaply.

Investors clearly know the costs, compensation time, site clearance and are allocated land to carry out the project, there is no longer a situation of “middlemen” hiding behind the landowner’s back causing difficulties for businesses. According to HoREA, the entire “land rent difference” collected into the state budget to serve public benefits will have the support and consensus of the people whose land is recovered, and society.

Compared to the old law, the upcoming forms of compensation for people will also be more diverse such as in money, in land with the same use purpose, in housing and in land with different uses, etc. This diversity can help projects speed up compensation and site clearance.

State recovers

In addition, the law also has provisions on 32 cases where the State recovers land to implement projects and works for national and public interests in Article 79. Thus, regulations on land recovery are more specific than before. The State only recovered land for commercial housing projects, mixed housing and commercial business projects when investing in urban areas. As for other projects, investors must proactively negotiate with people to determine reasonable compensation levels. This also contributes to reducing disputes and lawsuits.

​According to HoREA, Article 79 overcomes the situation of some local cases of widespread land acquisition as happened before. GPInvest Chairman Nguyen Quoc Hiep assessed that the new regulations create conditions for the market to develop more realistically. In the previous period, some regulations on land recovery were not close to reality, which also contributed to pushing the enterprise’s projects into congestion.

In addition, the Land Law 2024 also has a group of regulations to expand land use rights for Vietnamese citizens, including settling and living abroad. According to Article 4, Vietnamese people residing abroad enjoy full rights to rent, transfer, and be granted land certificates like citizens living in the country.

VnDirect believes that this will help increase the ability to attract remittances to the domestic real estate market, as well as create conditions for Vietnamese personnel and talents to return to the country to work and contribute.

Similarly, access to land for foreign businesses is also more open. Previously, foreign investors could only indirectly invest through a joint venture with a Vietnamese company. According to the new law, VnDirect analyzed, FDI enterprises are allowed to directly invest to implement projects without going through a company in Vietnam.

Source: thesaigontimes

Compiled by VietnamCredit

 

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