Stagnancy on real estate market expected to go away

Reviewing the real estate market last year, the Covid-19 pandemic obviously had certain impacts, but the larger factor was the law. It shows that many risks still exist in the market, which needs tackling soon to enter the new year, with the hope of higher development efficiency.

Stagnancy on real estate market expected to go away

Legal conflicts and gaps

The real estate market, after five years of recovery and robust development from 2014 to 2018, the supply of real estate investment projects to the market had decreased sharply in 2019 and 2020. By the end of 2018, many legal conflicts and gaps in the legal system related to the real estate market had been pointed out. It was great efforts of the Ho Chi Minh City Real Estate Association (HoREA), the Vietnam Chamber of Commerce and Industry (VCCI), and the Central Institute for Economic Management (CIEM) to study and identify these legal shortcomings.

Legal conflicts between laws related to the real estate market often show in the form of the inconsistency of administrative order and procedures in the approval and handling of pending projects. For example, the Investment Law 2014 uses the term ‘investor’ to refer to people who want to make investments and those who already have investment projects. Meanwhile, the Construction Law 2014 clearly distinguishes that ‘investors’ are people who propose investment projects, and ‘builders’ are those whose investment projects have been approved. The lack of inconsistency in legal terminology has caused stagnancy in the approval of investment projects. For the handling of pending projects, according to the Investment Law, after 12 months of inactivity, the investment certificate will be revoked. However, according to the Land Law 2013, the investors, who use the land behind schedule, will be extended for 24 months. During the extension period, if the project is still behind schedule, the land will be withdrawn. So, the land is wasted for two years, and the pending project remains unresolved.

The legal gaps show in the form of large projects using a large area of land, on which there are many different types of land, but each type of land is regulated by its specialized law. Project land may include land acquired while in use, which is handled according to the Land Law 2013; public land managed by the State that has not allocated and leased yet, or been used for public purposes is handled according to the Land Law 2013 and the Law on Public Asset Management and Use 2017; land used by State agencies subject to rearrangement is handled according to the Law on Public Asset Management and Use 2017 and regulations of the Government; land by moving potentially polluting industrial establishments and land by moving large public service establishments is handled according to regulations of the Government on the principle of permitting the transfer of old headquarters to get funding for the construction and relocation of new ones.

For withdrawn land that has carried out site clearance, it must be auctioned under the Land Law 2013. For the withdrawn land that has not carried out site clearance, it must auction the projects using land in accordance with the Decree guiding the implementation of the Bidding Law 2013 on investor selection. It is difficult for the land of real estate investment projects to comply with so many legal provisions, and inconsistent laws cannot approve projects. The Government issued Decree 148/2020/ND-CP on December 18, 2020, with the hope of filling these legal gaps, but it could only narrow them.

The lack-of-vitality segments

New types of tourism real estate, such as Condotel, Officetel, and Shophouse, have multi-functional features, and secondary investors are allowed to own real estate units in the projects. This segment thrives in the absence of a legal framework. This legal gap has made modern tourism real estate projects lack vitality and face difficulties to continue developing. In fact, tourism property is not a hotel for rent but also a relaxing place for families or sales offices. Due to the multi-functional use, the management and exploitation of this segment must stand from the perspective of the sharing economy. However, administrators see from a traditional business perspective instead. The land is only used for a limited time of 50 or 70 years, while the secondary investor can only claim ownership of the property on the land, instead of having the land use rights.

Meanwhile, the project investors also look at the matter with traditional economic thinking. They have to authorize project investors to exploit real estate units belonged to them to receive annual profits as committed.  The committed profit is 8 percent at the beginning. The following projects will gradually increase the rate to 9 percent, 10 percent, and up to 15 percent to attract the investment capital of secondary investors. When having understood everything about the law, secondary investors leave. The project investors encounter a shortage of investment capital and fail to pay the committed profits, then a dispute of interests occurs. The tourism real estate segment returns to the old-fashioned investment method without the companionship of secondary investors.

Looking back, the two attractive segments of the real estate market - housing and tourism - tend to decrease supply due to legal inadequacy, while the demand is always high. What needs to be done is to soon have legal solutions to prevent price hikes and bubble accumulation under the influence of speculators. The National Assembly passed the Investment Law of 2020, the Law on Public-Private Partnerships Investment 2020, and the Amended Construction Law 2020. These are good signs for the reduction of some legal conflicts. However, the Land Law 2013 and the Law on Public Asset Management and Use 2017 have not been revised yet. These shortcomings should be overcome soon to enter the new year with higher development efficiency.

By Professor Dang Hung Vo – Translated by Gia Bao

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