How will the 2024 Land Law impact the real estate market?

The new regulations regarding annual land price lists aimed at aligning with the market will significantly affect project implementation and investors' margins.

The amended 2024 Land Law, consisting of 16 chapters and 260 articles, which was recently passed by the National Assembly, will come into effect on January 1, 2025. According to assessments by numerous experts and research entities, abandoning the 5-year land price framework and providing clear regulations on land valuation methods are crucial points that will greatly influence the real estate market.

Previously, the government was responsible for issuing a 5-year periodic land price framework for each type of land in various regions. Subsequently, local authorities used this framework as the basis for establishing land price lists.

However, the amended Land Law no longer addresses regulations regarding land price frameworks. Instead, under Article 159, the land price list will be first published by the provincial People's Committees on January 1, 2026, and they will be responsible for annually updating and revising this list. Essentially, these new provisions will ensure that the state's land price list closely reflects market prices.

The Vietnam Real Estate Brokers Association (VARS) believes that eliminating the land price framework demonstrates the government's determination to maximize the protection of citizens' lawful rights and interests while creating a favorable environment for adjusting the real estate market towards transparency and fairness. Annual land price lists also help ensure a balanced alignment of interests among parties during negotiations and land clearance, thereby reducing disputes and promoting sustainable development in the real estate market, as stated by VnDirect Securities Company.

The amended Land Law also specifies four land valuation methods and outlines specific criteria for their usage, including comparison, income, adjustment coefficients, and surplus value. Notably, surplus value, evaluated as crucial and widely applied, has been retained. This method will be used in cases where land plots or areas for project implementation do not meet the conditions for employing comparison or income methods but can estimate the total project revenue and development costs.

Last year, some opinions proposed removing this widely used land valuation method and excluding land valuation methods from the Law. Previously, land valuation methods were stipulated in Decree 44 on land prices.

According to MB Securities Company (MBS), these clear regulations will expedite the resolution of land valuation issues, the major legal bottleneck facing real estate enterprises today. MBS points out that some projects will proceed once the law takes effect, such as Izumi City (Nam Long) and Gem Riverside (Dat Xanh). Industrial real estate will also benefit from the new law by facilitating the land use conversion process.

However, some uncertainties remain with the new regulations. VARS suggests that determining land prices based on market prices may require the state to allocate sufficient budget resources to ensure effective land clearance and compensation work. This raises concerns that when land prices closely align with market prices, it might increase business land use costs, leading to further increases in real estate prices.

MBS also anticipates that adjusting land price lists will increase enterprise land use costs, affecting investors' gross margins. However, MBS notes that the extent of this increase will depend on the implementing decrees accompanying the law, which will specify adjustment coefficients for different regions and the degree of land price adjustment at the local level.

Meanwhile, GP Invest's Chairman Nguyen Quoc Hiep is concerned about the short one-year validity period for land price lists, as it may create challenges for both businesses and local authorities. They would have to continuously update the prices annually (with the land price list being issued on January 1 of each year).

Another crucial aspect of this law is the specific provisions regarding land allocation for projects through land lease auctions or investor selection bids, as outlined in Articles 125 and 126. Article 126 states that winning bidders are responsible for providing capital for compensation, support, and resettlement within 36 months from the date of the bidding decision.

The Ho Chi Minh City Real Estate Association (HoREA) notes that these regulations ensure a balanced alignment of interests among the three related parties. Landowners receive fair compensation, without investors leveraging their positions to acquire land cheaply.

Investors have clarity on compensation costs, clearance timelines, and land allocation for project implementation, eliminating the practice of shadowy deals that hinder business operations. HoREA states that all "unearned increment" will be directed to the state budget to serve public interests, with the full support and consensus of affected landowners and society.

Compared to the previous law, the upcoming compensation methods for affected individuals will be more diverse, including cash, land with the same purpose, housing, and other land if the affected individual desires and there is available land supply. This diversity may expedite compensation and clearance processes for projects.

Additionally, the law specifies 32 cases in which the state may reclaim land for national or public interests. Thus, the criteria for land reclamation are more specific than before when the state only reclaimed land for commercial housing projects or mixed-use projects when investing in urban areas. In other cases, investors must negotiate with landowners to determine fair compensation, thereby reducing disputes and litigation.

According to HoREA, Article 79 addresses previous issues where local authorities excessively reclaimed land. GPInvest's Chairman Nguyen Quoc Hiep evaluates that the new regulations create conditions for a more realistic market development. Previously, some land reclamation regulations were not aligned with reality and contributed to hindering business projects.

Furthermore, the 2024 Land Law also includes provisions expanding land use rights for Vietnamese citizens, including those residing abroad. According to Article 4, Vietnamese expatriates enjoy full rights regarding land lease, transfer, and land certificate issuance as domestic citizens.

VnDirect believes this will enhance the ability to attract remittances into the domestic real estate market and facilitate the return of Vietnamese talent to work and contribute to the country.

Similarly, access to land for foreign businesses is now more open. Previously, foreign investors could only indirectly invest through joint ventures with Vietnamese companies. However, under the new law, foreign direct investment enterprises are allowed to invest directly in projects without the need for a Vietnamese partner, as analyzed by VnDirect.