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Top 7 shortcomings in Vietnam’s real estate market

Top 7 shortcomings in Vietnam’s real estate market

Saturday 28, 11 2020
According to the Ho Chi Minh City Real Estate Association (HoREA), it is very necessary to have appropriate policies regarding investment and trade in commercial housing projects.

1. Business autonomy is limited

Commercial housing projects are implemented through many phases from compensation, site clearance, land fund preparation, appraisal of projects and recognition of investors, construction licensing and construction, fulfilling financial obligations to the State, payment of land use fees, selling housing products and customer care.

A commercial housing project usually takes about 5 years or even 10 years to finish but the investor is not allowed to freely transfer the project (M&A) according to their business needs. Because the Land Law and the Law on Real Estate Business stipulate that investors are only allowed to transfer the whole or a part of the project, after having the certificate of land use rights (red book). This limits the business autonomy of enterprises in M&A activities, and cannot generate revenue for the state budget.

2. No long-term capital

Regarding project investment capital, according to the law, investors must have at least 15-20% equity of the total investment. Most of the remaining capital mainly depends on bank credit loans, or is mobilized from corporate bonds, or capital from joint ventures, cooperation (in the early stage) and from customers (when eligible to sell future houses).
No long-term capital
According to HoREA, there have not been medium and long-term capital sources for the real estate market. There have also not been any real estate investment funds or real estate investment trust funds (REIT). In addition, currently, there are not many reputable credit rating agencies in Vietnam except for VietnamCredit.

3. High cost

Because only legal, valid and reasonable expenses recognized by the Law on Taxation are allowed, the (nominal) prices of housing products are much lower than the actual costs that the investors have to spend. In addition, there are "unnamed expenses" which are not recognized as expenses considered "profits", which is subject to corporate income tax. In the end, all the costs are included in the selling price.

4. There are many unreasonable fees 

Some of the fees that investors have to pay are unreasonable for commercial housing projects, such as fees for agricultural land protection (for projects using agricultural land), with a minimum of 50%. 

This is a non-tax state budget revenue contributing to the increase in housing costs. With this direct collection of land use levies, the state budget revenue will not be re-generated for the following terms. If the "land use levy" collection method is replaced with "the tax on the conversion of land use from agricultural land to residential land", it will create a more stable and sustainable source of income for the State budget. If this tax is implemented, the current method of collecting land use levies must be abolished at the same time, to avoid tax overlap.

5. Real estate brokerage activities are not professional

Real estate brokerage is necessary because it helps bridge supply and demand, contributing to making the real estate market transparent and professional. However, most of the brokers in Vietnam are not professional, have not been fully trained in terms of knowledge, skills, and ethics. There is also a lack of management mechanism, so there have been many problems that cause inconvenience to customers.
Real estate brokerage activities are not professional

6. Overlapping legal documents 

There seems to be a "forest" of legal documents governing the real estate market, most of which are generally very cumbersome, complicated, overlapping, and conflicting like a "matrix" that discourage investors, especially foreign investors. However, in the past 10 years, the legal system has been gradually improved. However, there are still a number of legal provisions that do not ensure sufficient consistency, systematicity, uniformity and interconnection.

Due to legal problems, in Ho Chi Minh City, from December 2015 to September 2018, there were 126 housing projects with mixed land fund suspended, and from March 7, 2017, there have been about 158 projects using the State-managed land fund that had to be suspended for legal review and inspection. These legal obstacles have made the supply of housing products greatly reduced in recent years.
Overlapping legal documents

7. There are too many administrative procedures

There are also many shortcomings in law enforcement, especially the lengthy administrative procedure which is the cause of increasing investment costs, which increases housing prices. For examples, in some localities, businesses are required to pay "land use fees" before being recognized as the investor and granted a construction permit, while The Land Law and the Real Estate Business Law do not require the payment of land use fees at this time.

Source: Ho Chi Minh City Real Estate Association (HoREA)


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