"Tightening control" over land speculation.

Báo Tài nguyên Môi trường•12/12/2023

Land prices are trending downwards.

The amended Real Estate Business Law 2023, effective from January 1, 2025, was passed by the National Assembly on November 28. Accordingly, the amended Real Estate Business Law 2023 tightens regulations on land subdivision and sale by prohibiting the transfer of land use rights to individuals for self-construction of houses in wards, districts, and cities of special, type I, type II, and type III urban areas.

This regulation is stricter than the current regulation, which only prohibits the subdivision and sale of land plots in wards of special-class cities and centrally-administered Class I cities; areas with high requirements for architectural landscape; central areas and areas surrounding architectural landmarks in the city; and the frontages of regional-level roads and above, as well as major scenic roads in the city. The new regulation, issued under the 2023 Real Estate Business Law, is expected to have a significant impact on the land market.

10aa(1).jpg — Some subdivided land plots are currently abandoned. Photo: Cao Nguyen

Mr. Nguyen Chi Thanh, General Director of Thanh Binh Construction Company, stated that during the period of 2010-2015, due to the real estate market's liquidity crisis, the Ministry of Construction allowed projects to subdivide land and sell plots (without requiring house construction). Thanks to this regulation, the market resolved its liquidity problem. However, since then, many localities have "taken advantage" of the regulation, allowing widespread land subdivision and sale, risking disruption to urban planning. Therefore, the Law on Real Estate Business introduced a regulation prohibiting projects from subdividing land and selling plots. This means that investors will have to construct the basic structure for customers. As a result, the value of the land plot will increase due to the construction costs. This will limit land speculation. The land market is experiencing significant fluctuations. However, this is also an inevitable trend, similar to other countries around the world.

"The real estate market is becoming more professional, with businesses focusing on investing in and developing housing and construction on land instead of just investing in infrastructure and 'selling properties before completion'. At the same time, it helps to use land more efficiently and effectively; overcoming the situation of 'land speculation, slow land use, and abandoned land'. This policy is also expected to contribute to 'filtering' investors, forming more professional and capable real estate businesses after those with limited financial and technical capabilities are eliminated by the market," Mr. Thanh assessed.

Promoting the healthy development of the real estate market.

Tightening regulations on land subdivision and sale in major cities is a sustainable solution to make Vietnamese cities more orderly and beautiful, with value in terms of planning, architecture, aesthetics, and better ensuring social welfare in the long term.

This regulation is also one of the most significant changes in the recently passed Real Estate Business Law. In particular, for real estate projects that have been licensed but not yet completed, investors will have to carefully consider both short-term and long-term solutions for the future.

Thus, in just over a year, real estate businesses will begin to apply this regulation. Therefore, the market will experience a sharp price drop as developers accelerate sales to recover capital and avoid having unsold properties. However, in the current sluggish market, liquidity will not be easy. Only businesses with sufficient financial confidence will retain their properties to comply with the new plan.

Mr. Nguyen Manh Ha, Vice Chairman of the Vietnam Real Estate Association, stated: "In 2025, we will tighten regulations on land subdivision and sale in major cities. This will have a very strong impact on the market. First, the supply and demand for land plots will be less diverse. Previously, people could buy land plots regardless of their financial means, but now customers must be prepared to spend an additional 1-3 billion VND on building a house. In the long run, land plots will no longer be an 'easy' market for many. This market will require both sellers and buyers to have substantial capital to participate. The regulations on tightening land subdivision are a decisive and positive measure to bring about healthy development for the real estate market. Real estate businesses must learn to comply with the new rules of the game to adapt and survive."

Historically, real estate investors have favored the model of subdividing land into plots for sale because of the low financial costs. However, tightening regulations on land subdivision will eliminate this model, resulting in less diversity in real estate products. According to Ms. Nguyen Thu Hang, Director of Research at Savills Vietnam, a large number of investors will withdraw from the market when the new law officially comes into effect.

In the short term, the market will experience a sharp decline in transactions due to buyers' concerns about legal issues. The market will certainly undergo price adjustments. It may take 2-3 years, when supply decreases, before real estate prices can rise again. The market will develop more sustainably when real estate products are geared towards those with genuine needs.

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