Vietnam land ‘reforms’ won’t cede communist control

Promised market reforms likely to go unimplemented as real estate prices tank, confidence plummets and dissent rises

Vietnam is undergoing a consultation process to amend its Land Law and the related Housing Law, amid declining consumer and investor confidence in Vietnam’s real estate market following rising interest rates and the arrests of two well-known property tycoons.

Vietnam’s land, housing and real estate laws are publicly perceived as confusing and complex. A resolution of the Communist Party’s Central Committee issued on June 16, 2022, raised public hopes when it stated that the new laws should harmonize the interests of the people, investors and the state.

Yet the government’s draft land and housing laws have been criticized by local actors and business associations for failing to address systemic land and housing issues.

Since land is exclusively controlled by the state, a perennial cause of concern is the state’s power to compulsorily acquire land without paying fair compensation. In Vietnam, the state can acquire land for an array of vaguely defined reasons, including for “national economic development”, for the benefit of community or national interests, and for security purposes.

State officials, particularly at local levels, make all the key decisions relating to land acquisition and allocation. The compensation paid for compulsorily acquired land is based on price frames fixed by the state, not the land’s market value. The discrepancy between land valuation and low compensation prices leaves land evictees and investors unhappy.

The draft land law stipulates specific cases where the state can acquire land to develop for the national and public interest, potentially making the law clearer. It also removed state price frames, which fixed land prices for five years, in favor of a more flexible yearly price guide developed by the People’s Committee at provincial levels, which promises to be based on the market.

Although this has been welcomed, many commentators are skeptical about whether the amendment can be implemented as there is little guidance on how the market land price is to be established. Because the People’s Committee remains in control of determining land prices, the state is both a player and an umpire in the land acquisition and development process.

Another issue that highlights Vietnam’s statist approach to land is the inability of investors to use land rights as collateral to borrow money from foreign lenders. Under the 2013 Land Law, no foreign lender is permitted to mortgage the land use rights of a Vietnamese borrower.

Some groups are lobbying for an amendment to the law which would enable businesses to mortgage their land use rights in exchange for international funds for large economic projects. The government’s response has been cautious, despite proposals from experts to ensure “no foreign organization can have legal authority over Vietnamese land.”

Proposed changes to the Housing Law have also caused controversy. Vietnam’s tenure laws traditionally distinguish between land and houses. While the socialist manifesto calls for the abolition of private property, including land, socialist governments allow for house ownership as the asset is not regarded as a factor of production.

The right to house ownership is indefinitely protected by the Vietnamese constitution. But a proposal in the draft Housing Law has caused concern because it could limit the rights of apartment owners to 50-70 years.

Given Vietnam’s large population and its sizable rich-poor gap, apartments are popular and often the only way for young families and youth to enter the property market.

In 2022, the Ministry of Construction stated it was considering putting a 50–70 year cap on apartment ownership, citing the United States’ 99-year leasehold period as precedent. But the proposed amendment created public angst as it provided an administrative process to strip apartment owners of their ownership rights.

As private land ownership predominates in the United States and state ownership of land predominates in Vietnam, Hanoi’s policymakers have not fully considered the policy implications of the proposed changes.

Though the new draft has removed the reference to an apartment ownership cap, the amendment remains controversial as people could lose their ownership rights if their apartments are deemed unsuitable for habitation. There is also uncertainty about how residential relocation will occur and whether fair compensation will be provided.

Commentators are now calling for policymakers to embrace new modes of thinking. For example, lawyer Nguyen Tien Lap has urged for land to be viewed as a “living space”, not merely as a commodity, and for the community to be given a genuine voice in land governance.

He has also called for the removal of some grounds for compulsory state land acquisition, arguing that the current overlap of many existing grounds increases the likelihood of legal misinterpretation and abuse.

If history is a guide, the new laws will build on older principles. But a problem lies in Vietnamese policymakers’ attempt to import the idea of an apartment ownership cap without transferring its meaning. Such legal transplantation rarely succeeds.

Statist land regulation will not make way for market-led regulation. Senior Vietnamese political leaders have made it clear in 2022 that state land ownership is an enduring principle. Similar debates arose in 2013 and resulted in little fundamental change to the laws.

While senior leaders cite social stability as an important consideration in assessing any amendment, they overlook the reality that the status quo is already contributing to angst and instability in Vietnamese society.

It will be difficult for government narratives to continue to placate public concerns amid rising living costs and fears of land and housing deprivation.

By Toan Le – Asia Times – May 19, 2023