IMPACT OF CURRENT POLICIES AND LAWS ON THE REAL ESTATE MARKET

IMPACT OF CURRENT POLICIES AND LAWS ON THE REAL ESTATE MARKET

IMPACT OF CURRENT POLICIES AND LAWS ON THE REAL ESTATE MARKET

Pham Phuong Nam

Faculty of Natural Resources and Environment, Vietnam National University of Agriculture

Nguyen Thi Hue

Faculty of Land Management, Hanoi University of Natural Resources and Environment

Abstract: This article analyzes the positive impacts of the new Law on Land, Law on Housing, and Law on Real Estate Business on the real estate market (RE market) while highlighting the limitations of the RE market in recent times. The article also recommends solutions for more effective RE market management, contributing to socio-economic development and improving the material and spiritual life of the majority of people.

The study synthesizes and analyzes data collected from research results, officially published reports, and practical surveys, as well as new real estate regulations. Breakthrough changes positively affecting the RE market include land prices, land allocation, land leasing, land use rights transfers, compensation, support, resettlement, land finance, certification, housing creation, business in existing and future real estate.

Currently, real estate prices exceed many people’s financial capabilities; the law on asset auctions and taxes is still limited. Proposed solutions include improving real estate policies and laws; enhancing the dissemination and supervision of real estate law enforcement; strictly penalizing real estate law violations.

Keywords: Law on Land, Law on Real Estate Business, Law on Housing, real estate market.

Introduction

Traditionally, the real estate market (RE market) is where transactions for buying, renting, leasing real estate, or transferring land use rights and assets attached to the land occur. In modern terms, the RE market encompasses the relationships between those transferring real estate use and ownership rights and those receiving these rights (Nguyễn Thị Thu Hương & cs., 2024; Phan Thị Thanh Huyền & cs., 2022; Nguyễn Hoàng Minh & Phạm Văn Bình, 2015).

The RE market meets the demands for land, housing, offices, hotels, restaurants, etc., directly impacting labor, construction, production, consumption of building materials, furniture, finance, and credit markets. It also affects urban development and tourism. The RE market significantly contributes to economic growth (Dinh & Phuong, 2023; Gross & Lin, 2020; Vietnam Real Estate Association, 2023).

The RE market is influenced by various factors such as policies, real estate laws; the role of officials responsible for managing the RE market; the legal compliance awareness of RE market participants; natural, socio-economic conditions of the locality; real estate prices, etc. (Nam & Phuong, 2021; Nam et al., 2023; Nguyễn Thị Huệ & cs., 2022).

Among these, policies and laws on land, housing, real estate business, income tax from real estate transfers, non-agricultural land use tax, value-added tax, finance, and credit are the most impactful (Nam & Phuong, 2021; Phan Thị Thanh Huyền & cs., 2022; Tấn Minh, 2023). The provisions in these documents are crucial for the operation and management of the RE market according to the Party and State’s orientation (Đình Du, 2022; Trần Kim Chung & Đỗ Thị Lê Mai, 2020; Vương Minh Phương, 2018).

Therefore, the new real estate regulations in the Real Estate Law, approved by the National Assembly and effective from August 1, 2024, aim to create a legal basis for the sustainable and stable development of the RE market, ensuring that average and low-income groups can afford housing.

However, real estate prices remain high relative to the financial capabilities of the majority. Notably, the phenomenon of abnormally high auction prices affects the economy and social stability. This issue is a significant concern for policymakers and managers. Thus, this article aims to summarize the new real estate regulations that facilitate RE market development, analyze current RE market limitations, and propose solutions to address these issues.

The article structure includes an overview of theoretical issues on the RE market, research methods, analysis of the new real estate regulations effective from August 1, 2024, existing problems, and causes in the RE market; and proposes solutions for stable and sustainable RE market development.

Research Methods

The study synthesizes and analyzes data collected from research projects, real estate laws, and recent trends in the real estate market (RE market) to provide evaluations of the positive aspects, limitations, and causes of these limitations. The research also proposes solutions to develop the RE market further, contributing more to socio-economic development and improving the material and spiritual lives of the majority of people.

I. New Real Estate Law Provisions Positively Impacting the Real Estate Market

The 2024 Law on Land, the 2023 Law on Housing, and the 2023 Law on Real Estate Business (collectively referred to as Real Estate Laws) effective from August 1, 2024, introduce many new provisions that will increase the supply of land use rights, housing, and other construction works attached to the land, as well as streamline real estate transactions. The main new provisions with the strongest impact on the RE market’s development can be summarized as follows:

1. Impact of New Provisions According to the 2024 Law on Land

The 2024 Law on Land has refined regulations on land allocation and leasing through bidding; improved regulations on compensation, support, and resettlement to ensure the rights of landholders whose land is acquired and investors.

A notable change is the refinement of the land valuation mechanism. The Luật Đất đai abolishes the land price framework and instead develops an annual land price table through four valuation methods with oversight and monitoring by central authorities and the People’s Council to ensure land prices align with the market value.

Additionally, with the completion of the land price database, publicly available information on sales and transfers will help buyers understand market land prices. This increases the transparency of the RE market, making real estate transactions easier and safer, enhancing the market’s liquidity.

Furthermore, the Law on Land expands property ownership opportunities in Vietnam for overseas Vietnamese. This opens the door to both domestic and foreign investors, increasing foreign currency inflows into the national economy. The Law on Land explicitly mandates local authorities to allocate land for housing construction for low-income individuals, facilitating the goal of building one million social housing units.

Provisions such as direct land allocation without auction or bidding for social housing, worker housing, land allocation for teachers, and healthcare workers in border, island, and economically disadvantaged areas, help the RE market develop more favorably. These measures minimize land-related disputes, shorten the time and costs for investors in accessing land and developing projects. Streamlining procedures and increasing supply will also likely lead to lower real estate prices. 

Additionally, the Law on Land clearly specifies the remaining cases where land allocation and leasing are conducted through public auctions and bidding. This promotes a transparent and public market, allowing the selection of financially capable and competent investors, contributing to effective land use, accelerating project legal progress, and boosting market supply. It helps localities determine specific land allocation mechanisms for project implementation.

According to Article 117 of the Law on Land, for land currently in use by another party, real estate project transfers as per real estate business law do not require land reclamation from the transferor. Instead, foreign-invested economic organizations that receive real estate project transfers will be allocated or leased land by the State without auctions or bidding, specifically allocated land with land use fees as stipulated in Clause 3, Article 119 of the 2024 Law on Land. This regulation saves time for the parties involved, helping the transferee quickly complete the transfer process.

Particularly, economic organizations and individuals not directly engaged in agricultural production can now transfer rice cultivation land. This new regulation addresses the previous “loophole” where non-direct producers obtained certificates by falsely claiming direct production to transfer agricultural land. The Law on Land also increases the limit on agricultural land transfer rights to no more than 15 times the local land allocation limit.

It allows agricultural land users to change crop and livestock structures and build facilities directly serving agricultural production. This enables individuals to accumulate agricultural land, develop large-scale agriculture, apply technology fully, and move towards modern agricultural production, increasing farmers’ income.

Moreover, households and individuals who have been stably using land before July 1, 2014, without land use rights documents, have not violated land law, and are not in unauthorized land allocation cases can be granted land use certificates if confirmed by the communal People’s Committee to be dispute-free.

This increases the land supply for the RE market, meeting the residential land and housing needs. Furthermore, compensation when the State recovers land is calculated based on the specific land price determined by the provincial People’s Committee at the time of approving the compensation, support, and resettlement plan, determined using the land price adjustment coefficient method. 

When the land price table is constructed based on market prices, compensation for land will also increase, minimizing the loss for individuals when land is recovered. The land price table will also be used to calculate land use fees, personal income tax when transferring land use rights, etc.

Thus, aligning the land price table with market prices will increase taxes and fees on land transfers, reducing land speculation and potentially bringing land prices closer to their real value.

The Law on Land also stipulates various forms of compensation for individuals whose land is recovered. Compensation can be provided by allocating land with the same use purpose as the recovered land; by monetary compensation if no land is available and the individual has a demand; by allocating land with a different use purpose from the recovered land; or by providing housing.

Priority is given to individuals compensated with land or housing to choose monetary compensation if desired by registering when formulating the compensation, support, and resettlement plan. If agricultural land is recovered, compensation can be provided with residential land or housing.

Households and individuals whose agricultural or non-residential land is recovered and qualify for land compensation as stipulated, and have a demand for compensation with residential land or housing, will be compensated by allocating residential land or resettlement housing if the locality has conditions regarding land and housing funds.

Regarding the conversion of agricultural land use purposes, from August 1, 2024, households and individuals converting agricultural land use purposes within residential areas, within the same plot, or converting non-residential agricultural land to residential land, need only comply with the approved district-level land use planning instead of the annual land use plan.

The district-level land use planning is issued for a 10-year period, while the land use plan is issued annually, making the conversion of land use purposes easier. These regulations also contribute to increasing the real estate supply for the market.

2. Impact of New Provisions According to the 2023 Law on Housing

The 2023 Law on Housing stipulates that provincial People’s Committees must allocate sufficient land funds for social housing development according to the provincial housing development program and plan that has been approved.

In special cities (Class I, Class II, and Class III), based on government regulations, provincial People’s Committees decide whether investors in commercial housing development projects must allocate a portion of residential land area within the project that has been invested in technical infrastructure to build social housing or allocate social housing land funds with invested technical infrastructure in a different location outside the commercial housing development project in that urban area, or pay an equivalent amount of money for the land fund with invested technical infrastructure to build social housing.

The Law on Housing stipulates that social housing investors not using state budget funds will enjoy better incentives, such as being exempt from land use fees and land rent for the entire project area; receiving value-added tax and corporate income tax incentives; being able to borrow capital at preferential interest rates, etc. These support policies will encourage and attract investors to participate in social housing development.

Notably, investors can earn a maximum profit margin of 10% of the total construction investment cost for the social housing area and allocate up to 20% of the residential land area within the project that has been invested in technical infrastructure for commercial service, commercial housing construction.

Individuals wishing to build mini-apartments (housing from 2 stories or more, with apartments on each floor, or from 2 stories and a scale of 20 apartments or more) for sale or lease must meet the conditions to become a housing project investor. Apartments that meet the conditions will be granted certificates under land law and can be sold, leased, or leased-purchased according to real estate business law.

Therefore, the Law on Housing recognizes the individual ownership of each mini apartment unit through certification and allows them to be sold, leased, or lease-purchased according to the law.

Additionally, the more specific regulations on conditions, construction standards, fire safety, traffic management, and operational management for this type of apartment provide a basis for sub-law documents to specify conditions and standards for strict management of mini apartments.

Furthermore, social housing project investors must account separately and not include the investment costs for commercial service, commercial housing, and commercial service buildings in the social housing price.

Investors will enjoy the entire profit from the commercial service, commercial housing areas. If investing in commercial housing, investors must pay land use taxes for the commercial housing construction area according to land law. Thus, investors can gain additional profits from developing social housing through commercial areas.

The Law on Housing also stipulates that social housing buyers or lease-purchasers cannot resell the housing within a minimum period of 5 years from the date of fully paying the purchase or lease-purchase price.

If they need to sell the housing within this 5-year period, they can only sell it back to the social housing management unit or to eligible social housing buyers if the unit does not purchase it, at a maximum price equal to the price of similar housing at the same location and time. This regulation ensures that low-income individuals can more easily access social housing.

3. Impact of New Provisions According to the 2023 Law on Real Estate Business

The 2023 Law on Real Estate Business stipulates that foreign-invested economic organizations not required to perform investment procedures for foreign investors under the Investment Law can conduct real estate business like domestic organizations and individuals.

This amendment facilitates and expands the scope of activities for foreign-invested economic organizations in specific cases, ensuring consistency with the Investment Law.

The Law on Real Estate Business also adds a provision that real estate project investors can only collect a deposit of up to 5% of the selling, leasing, or lease-purchasing price of housing, construction works, or building floor space from customers when the housing or construction works meet the business conditions as prescribed. This noteworthy new point accurately reflects the nature of deposits while minimizing risks for buyers and lease-purchasers.

The Law on Real Estate Business also stipulates that before handing over future-formed housing, investors can only collect a maximum of 50% of the purchase contract value instead of the current 70%. This directly impacts home buyers by reducing financial pressure and minimizing risks when purchasing future-formed housing. This provision reduces capital from customers, requiring investors to actively seek and arrange capital from other channels to ensure project implementation.

Regarding guarantees in selling and leasing future-formed housing, the Law on Real Estate Business allows buyers to choose whether or not to require a financial obligation guarantee from the investor. This regulation provides flexibility for parties to negotiate based on actual needs but still allows buyers to request credit institution guarantees when necessary to protect their legitimate rights at the time of signing contracts with investors.

The Law on Real Estate Business adds Class II and Class III urban areas to the group restricting land subdivision for sale, tightening the existing regulations. This tightening ensures the healthy development of the housing market, urban landscape, and development. The new regulation also clarifies procedures for investors to facilitate transfers.

Moreover, the Law on Real Estate Business requires transferring investors to fulfill all financial obligations related to the project. This regulation tightens transfer conditions for the transferor, preventing project transfers purely for profit and aligning with the principle that sellers can only transfer what they own.

The law also stipulates that real estate investors and businesses must receive payments from customers through banks, not cash, for real estate transactions, while other cases can be mutually agreed upon. The law clearly mandates businesses to disclose real estate information before putting it on the market, ensuring that those needing information can access it quickly and accurately.

Additionally, real estate transactions must record the actual transaction price in the sales contract to avoid tax evasion. Recording the correct transaction price ensures comprehensive and accurate information and data for management and operation, reflecting the actual market situation, especially for decisions related to pricing.

Overall, these new regulations collectively aim to foster transparency, protect buyers, reduce financial risks, and promote a healthier and more efficient real estate market in Vietnam.

1. Some Limitations and Causes of the Real Estate Market

Although the current Real Estate Business Law has been recently issued with the expectation of contributing to the stable and sustainable development of the real estate market (RE market), there have been abnormal increases in the winning bid prices for land use rights auctions from 7.3 million VND/m² to 133.3 million VND/m² (an 18.3-fold increase).

Many individuals who win land auctions subsequently propose higher transfer prices than their winning bid to profit (up to nearly 1 billion VND for a 90 m² auctioned plot).

Furthermore, in 2021, the winning bid prices for land reached record highs (2.43 billion VND/m²), 8.3 times the starting auction price. Abnormal high bids are also aimed at creating higher land price benchmarks in other areas, increasing profits, and boosting demand for land use rights. In cases where abnormally high bids fail to transfer the auctioned land, the winning bidder forfeits the auction results and loses their deposit.

This affects the RE market in adjacent areas and impacts the organization of local auctions. Those who bid excessively high relative to market value generally do not have actual usage needs but primarily aim for short-term profit.

Purchasing land use rights without the intention of using it for production, commerce, or services to create societal wealth but only to resell or inflate land prices for personal gain results in several consequences. The prices of land, including residential land, agricultural land, and other land use purposes, all increase, leading to higher compensation, land use fees, land rent, and real estate prices.

As a result, production costs increase, causing overall economic goods prices to rise. Accessibility to land and housing for most individuals with real demand decreases as their income is relatively small compared to the inflated property values.

All these issues negatively impact the socio-economic environment, security, and order of localities. In particular, rising land prices also lead to increased housing costs (including rental housing), affecting the lives of various social strata. 

In addition, rising real estate prices have given rise to land speculation trends, with many people rushing to borrow money to buy real estate in the hope that prices will increase in a short period, rather than investing financially in production to create products for society.

The causes of these limitations stem from highly profitable real estate business activities, despite the risks, speculators are willing to find ways to earn income from real estate business. Furthermore, the policies and laws regulating real estate relationships, although amended and supplemented, have not effectively prevented these negative phenomena. This also affects the balance of real estate supply and demand in the market according to each segment, each area, and at each time.

These issues need comprehensive solutions that balance development with sustainable practices, ensuring that the real estate market contributes positively to the economy without causing undue social disruptions.

III. Conclusion and Recommendations

The current Real Estate Business Law includes many groundbreaking provisions regarding land access, increasing housing supply, especially social housing, and more favorable real estate transaction regulations.

However, despite these improvements, laws on taxation and asset auctions, particularly land use rights auctions, still limit the effectiveness of the real estate market, making real estate prices higher than the financial capacity of most people who genuinely need real estate for use rather than for profit.

To address these limitations, for land use rights auctions, it is necessary to consider raising the pre-bid deposit to 50% of the starting value of the land use rights being auctioned to limit the refusal of auction results. Additionally, it should be stipulated that successful bidders can only transfer land use rights after being granted the land use rights certificate.

Simultaneously, there should be a requirement that, within a maximum of 3 working days, the competent authority must issue a decision recognizing the successful bidder of the land use rights auction, and within a maximum of 5 working days, the successful bidder must fulfill their financial obligations for the auctioned land.

If the successful bidder does not fulfill their financial obligations within the specified period, they lose their pre-bid deposit and are prohibited from participating in land use rights auctions for 5 years, except in cases of force majeure. To ensure the rights of successful bidders who have fully and promptly fulfilled their financial obligations, the competent state authority must issue the land use rights certificate to the successful bidder within a short period (no more than 3 working days from the date the successful bidder completes their financial obligations).

Successful bidders are allowed to transfer land use rights after being issued a certificate but must pay personal income tax from land use rights transfer on a progressive basis at rates of 6%, 5%, 4%, 3%, and 2%, corresponding to transfer times of less than 30, 60, 90, 120, and 163 days from the certificate issuance date.

Additionally, a progressive non-agricultural land use tax should be applied to residential land with higher rates than currently, such as maintaining the current tax rate of 0.03% for households and individuals using land within the allocation limit, but applying a 0.10% rate for areas up to three times the limit, 1.0% for areas up to five times the limit, etc. The current maximum tax rate is 0.15% for certified residential land and 0.20% for encroached land.

Bidders do not need to prove the source of funds to participate in the auction but must fulfill financial obligations within the specified time, or they will forfeit their deposit. The State Bank should also stipulate progressive loan interest rates for purchasing land use rights according to the residential land allocation limit for households and individuals. Banks should link loans for customers to buy land use rights through auctions. The preferential interest rate only applies once per household or individual.

Promoting the application of information technology in disseminating real estate laws and monitoring the obligations of auction participants, real estate businesses, and those holding multiple properties nationwide is crucial. Regular updates and evaluations of the implementation of new legal regulations, actively receiving feedback from relevant entities to ensure timely adjustments, and strictly penalizing violations of real estate laws are also necessary.

References

Vietnamese

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2. – Đình Du (2022), Real estate prices increase “hotly”: Market turmoil. Retrieved January 27, 2023, from https://baotainguyenmoitruong.vn/gia-bat-dong-san-tang-nong-thi-truong-nhieu-loan-338290.html.
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5. – Nguyễn Thị Huệ, Nguyễn Văn Quân, Xuân Thị Thu Thảo, & Nguyễn Sỹ Hà (2022), Fluctuations in residential land prices in Tu Son city, Bac Ninh province, period 2017 – 2021. Journal of Forestry Science and Technology, Article 6.
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English

13. – Dinh, T. N., & Phuong, N. P. (2023), Social housing development: A case study in Bac Ninh province, Vietnam. Housing, Care and Support, 27(1), 17–33. https://doi.org/10.1108/HCS-05-2023-0010.
14. – Gross, M., & Lin, C. (2020), Comparison of real estate management system in China and Poland. Real Estate Management and Valuation, 28(1), 13–27.
15. – Nam, P. P., Hue, N. T., & Huyen, P. T. T. (2023). The Impact of Factors on Residential Land Prices: A Case Study in Tu Son City, Vietnam. Real Estate Management and Valuation, 31(2), 66–81. https://doi.org/10.2478/remav-2023-0014.
16. – Nam, P. P., & Phuong, T. T. (2021), Factors affecting commercial housing prices in Vietnam. International Journal of Housing Markets and Analysis, 15(5), 1019– 1032. https://doi.org/10.1108/IJHMA-06-2021-0065.

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