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Land issues

1. Land Management Regime

All land in Vietnam is owned by the People and is administered by the State. The right to use land (as contrasted with ownership of land) can be allocated or leased by the State for long-term and stable use. The Land Law breaks land down into three categories:

(i)                   agricultural land (e.g., land for cultivation of annual crops and forest land);

(ii)                 non-agricultural land (residential land, land for construction of offices, industrial parks and business establishments, land used for defense and public security, land used for public utility purposes, such as scenic places, historical and cultural sites, and land used by religious establishments); and

(iii)                unused land.

The implementing regulations of the Land Law of 2004 have regularly updated and revised by the Government in order to recognize and enforce a broad bundle of ownership rights associated with land use rights, including the right to exchange, assign, lease, sublease, give, bequeath, and mortgage land use rights or use the same for guarantee or capital contribution purposes as well as streamline land administration procedures and rationalization of land use rights registration process.

The two new laws enacted in the year 2006, namely the Law on Real Estate Business (effective January 2007) and the Law on Housing (effective July 2006), aim to provide a greater access to and participation in the Vietnamese real estate market for foreign investors and oversea Vietnamese, recognize a wide variety of real estate market transactions and facilitate more market driven land valuation.

In Ho Chi Minh City, the administration of land, including the granting of land use rights, is carried out by the City People’s Committee.

2. Land Use Right Certificate

Beginning July 1, 2007, land users must have an a certificate of land use right in order to exercise their land use rights including the right to exchange, assign, lease, sublease, give, bequeath, mortgage, land use rights or use the same for guarantee or capital contribution purposes.

3. FIEs and Foreign Invested Projects

Foreign-invested enterprises can lease land from the State or organizations holding the land ownership for 70 years and if necessary the land lease may be extended repeatedly but not exceed 70 years each. Decree 181 explicitly allows foreign investors to lease and sub-lease industrial park, economic zone or export zone space for their projects.

Foreign investors also have a fundamental decision to make with respect to the timing of rent payment to the State. They can choose to pay the rent on annual basis or in one lump sum for the term of the lease.

If FIEs lease land from the State and pay land rental annually, such FIEs will have a limited land use right. For example, FIEs are not allowed to create pledge or mortgage or give guaranty using the value of their land use right. FIEs cannot sub-lease their land use right either.

However, FIEs can mortgage or guarantee or make capital contribution using the assets owned by them attached to the leased land and transfer or sell the assets attached to the land and the ultimate buyer shall sign a new land lease with the State.

If FIEs lease land from the State and make one payment of land rental for the entire term of the land lease, they will have full rights over the land and assets attached to the land, for example, assign/sell their land use rights and assets attached thereto, or sub-lease their land use rights and assets.

FIEs are also entitled to compensation if the State mandates return of land use rights.

4. Foreign Investments in Real Estate

Foreign developers may invest in both commercial housing projects and low income housing projects. Foreign commercial housing developers must obtain a certificate of investment under the common Investment Law as stated in Section 1 of Part A above. If more than one developer is interested in developing the project, then the project will be awarded through bidding.

The scope of real estate businesses that foreign developers are permitted to carry out is narrower than that for domestic investors. Generally, foreign investors can choose to invest in the following real estate project:

(i)                   Invest in the creation of house and building for sale, lease out or grant of hire purchase;

(ii)                 Invest in upgrading land and to invest in infastructure works on the leased land in order to lease out land with completed infastruture;

(iii)                Other services in real estate such as: services in real estate brokerage, real estate evaluation, real estate trading floor services, real estate consultancy services, real estate auctioning services, real estate advertising services and real estate management services.

Foreign investors are not permitted to (i) buy a house or a construction work for re-sale, lease or hire purchase and (ii) lease a house or a construction work for sub-lease as those two activities are reserved for domestic investors.

With respect to investment projects in residential houses where their investors make one payment of land rental for the entire term, the investors will be entitled to build residential houses for sale and for lease.

If the payment of land rental is made annually, the FIE is permitted to build residential houses for lease only. A joint venture who invests in residential houses for sale and has the land contributed by the Vietnamese party will not be required to pay land rental.

5. New Urban Center Development

Foreign and domestic investors can develop new urban centers in Vietnam. A new urban center must cover at least 50 hectares unless it is surrounded by existing urban centers or bounded by other projects. In such a case it may cover from 20 to 50 hectares.

Selection of new urban center developers can be through bidding or appointment. They also have to maintain a debt/equity ratio not exceeding 5 to 1 and are allowed to issue project bonds.

New urban center projects using a land are of less than 200 hectares can be decided by the provincial People’s Committee. Larger projects must be submitted to the Prime Minister’s for his approval following appraisal by the relevant provincial People’s Committee.

6. Land Management in Ho Chi Minh City and Incentives in Investing in Ho Chi Minh City

To lease land for foreign investment projects, a foreign investor must submit to the Ho Chi Minh City Department of Natural Resources and Environment or the Management Board of the Southern Part of Ho Chi Minh City the following documents:

·         Application for Land Lease;

·         Investment License;

·         Land Cadastral Map;

The investor is required to prepare the application for land lease. In the case where application files submitted at the Board of Management of Southern Part of city, such body, after examining files, shall transfer it to the Department of Natural Resources and Environment.

An application for land lease can be submitted to the Department of Natural Resources and Environment after such enterprise obtain an Investment License from competent State agent because it needs to submit an Investment License for application of land use rights. With respect to investment projects requiring approval from State agents, foreign investors can complete the application file with such approval before receiving land use rights.

Within twenty working days of receiving the application for land lease, the City People’s Committee shall decide and sign the Decision in land lease and the Department of Natural Resources and Environment will sign and give out the Land Use Certificate to the FIEs.

With respect to the projects in site that have not yet been cleared, the Department of Planning and Investment is responsible for providing foreign investors with an average compensation rate for land recovery. After the People’s Committee of city signs the decision of land recovery, People’s Committee of District shall cooperate with investors in carrying out the compensation and clearance of such areas.

In addition, if such projects are encouraged and the land compensation for such projects is large, the Ho Chi Minh City People’s Committee will consider supporting foreign investors with the clearance or compensation expenses with the amount that does not exceed the total land rental paid.

In some specific cases, the Ho Chi Minh City People’s Committee will support the investors by carrying out the compensation and clearance in advance or demolishment and resettlement for inhabitants in the areas. After getting the investment lisence, the investors have to reimburse the People’s Committee of Ho Chi Minh City such compensation and clearance expenses plus interest (equivalent to the current interest rate of the State Bank).

During the process of project preparation, the investor could also obtain information about urban planning and architecture, rental charges, legality, land status, source and land categories of Ho Chi Minh City at the Department of Planning and Investment (DPI) or Investment and Trade Promotion Center (ITPC).

The Information and Housing Registration Center (Department of Natural Resources and Environment) is responsible for providing cadastral map to investors within two (02) working days of receiving the requests. If the maps are not available, within two (02) working days, the Department will inform and instruct the investors on the procedures for setting up the map of the project location.

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