Vietnam’s land use rights can be complicated for first-time business investors. In Vietnam, land is collectively owned by people and administered by the government on their behalf. Therefore, under such a system, property owners cannot have full and legal ownership of land. Their rights are limited to land use rights permitted within the law.
Vietnam’s land use rights can be complicated for first-time business investors. In Vietnam, land is collectively owned by people and administered by the government on their behalf. Therefore, under such a system, property owners cannot have full and legal ownership of land. Their rights are limited to land use rights permitted within the law.
Once a foreign investor has decided on Vietnam as a location to establish operations, the next significant step is identifying where and how to obtain land for their business.
Land users typically receive a land use right certificate (LURC), which shows the land user’s rights on the property. There are different types of land usage rights which we discuss; however, it is important to note that under current law, foreigners can retain an LURC for 50 years, while locals can have one indefinitely.
The government can choose to grant a one-time extension of another 50 years or take the land back if the party has failed to use the land under the terms and conditions of the LURC.
While this system may seem inconvenient, other countries such as the UK also employ such a system without significantly constraining investors. In fact, with a proper understanding of current regulation, leasing land in Vietnam can provide all the resources for successful investment within the country.
As per the Housing Law No. 65/2014/QH13 in 2014, foreigners in Vietnam have many of the same land rights prescribed to Vietnamese nationals, particularly the right to own land.
Despite the liberalization, foreigners are still prohibited from possessing more than 30 percent of the apartments in a given building and more than 205 houses in an area where the population is that of a ward-administrative division.
Land use rights
The type of actions an investor may take in relation to the rented property largely depends on the payment schedule. An individual can either lease a piece of land and pay annual rent (called the “annual arrangement”) or provide the entire lease amount in one payment (called the “one-off arrangement”).
According to the annual arrangement, an investor is only allowed to use the land for the stated purposes and transfer assets as part of the land. With the one-off arrangement, one can transfer, sublease, or mortgage the land and involved assets. Furthermore, the government allows the opportunity to contribute capital in the form of the LURC and assets to a joint-venture (JV).
Four ways to lease land
For investors keen on leasing land in Vietnam, there are several ways to obtain land with a LURC, although the government enumerates different methods for locals and foreigners. We highlight four available methods that investors can choose from.
Method 1: The first method is through allocation, where the state allocates a LURC via an administrative decision. Land users are required to pay land use fee to the government and this option is available to investors in residential housing projects and infrastructure project in cemeteries
Method 2: The government leases the land to the land user where the user pays rent to the government. The rental may be paid in a lump sum or annually. This is in many ways like the customary system of renting.
Method 3: The third option is by a lease or sub-lease agreement with the landlord in an industrial zone, industrial cluster, processing zone, high-tech zone or an economic zone. The landlord is typically a commercial enterprise that has obtained land use rights under the above two mentioned options.
Method 4: The fourth option is by an agreement on the transfer of assets that are attached to the land with an agreement ton the transfer of land use rights, a land lease agreement or a capital contribution with an existing land user. In such cases, the investor acquiring the land use rights will become the land user of the acquired land area.
Investors can choose any of these options; however, the third method is most straightforward since the landlord in the specific zone should have completed all necessary paperwork and procedures prior to renting land.
Every year, the People’s Committee, with the support of the Ministry of Natural Resources and Environment (MONRE), establishes the land price based on market value. When leasing land in Vietnam, the price cannot deviate more than 20 percent from this official price.
Land can be leased from Vietnamese companies (such as a state-owned enterprise or limited liability corporation), Vietnamese citizens living abroad, or a foreign-invested company (FIC) that is leasing land from the government to develop infrastructure on the rented land.
A company can only lease land if it has obtained the land with the allocation method, unless the land was leased before July 1, 2004, and a sufficient amount of the lease has been paid. Furthermore, land can be leased for a maximum of 50 years, and 70 years in special cases.
To renew the lease, the investor has to obtain approval for an extension. Companies also have the option to rent an office in a building or lease from a company in an industrial zone or export-processing zone.
Steps required for leasing land
While leasing land does not necessarily have to be a complicated process, it is important to determine whether or not the proposed investment will gain approval before signing any rent contracts. Potential investors can obtain an “Approval in Principle,” which is a letter given by the provincial people’s committee – similar to a cabinet – commenting on the feasibility of the project.
It does not guarantee approval, and the committee may change their opinion about certain aspects of the project, but it is nonetheless a helpful gauge for potential investors. Subsequently, the company must obtain an investment registration certificate and an enterprise registration certificate, and then complete the land lease agreement with the people’s committee.
Finally, the company will need to submit the application to the local MONRE to get the LURC.
Selling LandForeigners in Vietnam have many of the same rights as Vietnamese when it comes to selling. A foreigner who is eligible for home-ownership has the ability to sell their land. The process is straightforward, but it is nonetheless important to ensure compliance with all regulations as outlined by the Ministry of Construction.
There are several special cases to bear in mind:
• If a foreign company owns a house for the purpose of housing employees, they are more limited in their rights – they are unable to sell or lease the house or use it as an office and can only continue to house employees;
• If selling a house under a lease agreement, the lessee must be given 30 days’ notice and given the option to purchase the house, while the lessee must decide whether to do so within that time period; afterward, the land may be sold to others.
Vietnam’s emerging real estate landscapeDespite an unequal competitive landscape, foreign developers continue to invest and acquire land rights in hopes that the government will change regulations. Foreign investors face some risk, but investors are positive about the growth of Vietnam’s property market.
Major investors are from China, Japan, Hong Kong, South Korea, and Thailand. In fact, in the first five months of the year, real estate was the third largest sector receiving FDI at US$1.1 billion.
Vietnam faces competition from regional competitors and will want to ensure it remains a preferred destination for foreign capital. As such, this bodes well for foreign investors wanting to enter the growing real estate sector.
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