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Sweeping reforms are heralding a new era for foreign investment into Vietnam’s property sector, but much remains unexplained, writes Brian Yap

Vietnam’s recent sweeping real estate sector reforms have prompted investors, particularly foreign enterprises, to express hope and concern – and have led them to knock on lawyers’ doors for advice on the newly amended laws.

Tran Thi Ngoc Linh, a senior partner leading the Hanoi office of Dentons LuatViet, says, “This new progress in the land legislation is very crucial to our real estate clients’ business in this country, so they are following very closely. They know the market and that the new law is a very first step, and the drafts of the new decrees giving detailed guidelines on the new Land Law are also attracting attention from them.”

In January this year, the national assembly, Vietnam’s highest state administrative body, passed the amended Land Law, following an earlier adoption of new laws on real estate business and housing, in November last year. The three new laws, which are set to take effect on the first of January next year, have introduced unprecedented changes to existing regulations and have raised foreign investors’ hopes of seeing longstanding legal obstacles addressed.

Tran Thai Binh

Tran Thai Binh, a partner at LNT & Partners in Ho Chi Minh City, tells Asia Business Law Journal that his clients, including foreign-invested real estate developers, are concerned about land procedures, which have been problematic in terms of getting approvals from authorities for land compensation and land fees.

“Now we have one client and a project that we’ve spent around two years on already just for the land valuation process for calculating the land use fee to be paid to the authorities, but they haven’t decided on the price of the land that the developer must pay. We hope that with the new land laws there will be clearer regulations on land valuation,” he says.

Foreign investors from various sectors including manufacturing, finance, energy, commercial residential development and data centres have all been seeking legal advice from international law firms like Baker McKenzie.

Oanh Nguyen, the Ho Chi Minh City-based managing partner of Baker McKenzie’s Vietnam offices, says: “We have been approached by various investors for consulting regarding the potential impacts of the new laws, [which have] brought to the investors’ consideration if the ongoing activities can be restricted or more open under the new laws in 2025, and whether their operation or business should be restructured because of the new laws.”

Oanh Nguyen

So, for foreign investors, how significant are the three new laws? And why are they crucial to their investments in the country?

“From the standpoint of foreign investors, the most significant difference between the existing real estate-related laws and their corresponding amended versions is the change in how a foreign-invested company is defined under the new laws,” says Ho Thuy Ngoc Tram, a Ho Chi Minh City-based partner at Frasers Law Company.

Ho says that this is the first time the country’s real estate laws have referred to and adopted the prevailing law on investment for their definitions of foreign-invested companies.

Ho Thuy Ngoc Tram

On the implementation of the laws next year, companies with 50% or less charter capital held by foreign investors will, under specific cases and circumstances, be entitled to the same rights, conditions and procedures as wholly Vietnamese-owned companies.

By contrast, the current laws categorise all foreign-invested enterprises (FIEs) as foreign direct investment (FDI) companies regardless of the extent of foreign ownership, meaning that companies with minority foreign ownership – including one share – are treated the same as those with full foreign ownership. Foreign investors may, thanks to these changes, have more options to consider, structure and phase their investments to achieve maximum rights and entitlements without being restricted due to any portion of foreign ownership, as is currently the case.

“The changes in the definitions of foreign-invested companies in the real estate laws may encourage investment in the form of joint ventures between foreign and domestic investors, especially for projects at an early stage, or for the purpose of land acquisition,” says Ho.

She explains that in certain scenarios delineated by the law, domestic companies enjoy distinct advantages over FDI companies, including access to more favourable forms of land acquisition, a broader scope of eligible real estate business activities, and higher limits on pre-sales collections for off-plan houses. Consequently, foreign investors seeking these enhanced options, superior rights and entitlements may, according to Ho, consider structuring their investments through FDI non-controlling joint ventures. By doing so, their joint ventures can be treated as domestic companies, availing them of the advantageous provisions.

Another development hailed by lawyers as a major change for foreign investors is the permission of FIE land users that lease or sublease land in industrial parks to mortgage land use rights and assets built on the land to credit institutions or banks, as well as other economic organisations and individuals in Vietnam.

Such economic organisations, as defined by the current land law, include incorporated entities, co-operatives and other economic organisations established in accordance with the civil laws and regulations, but do not include FDI enterprises.

Currently the land, and assets attached to the land and buildings, can only be mortgaged in favour of credit institutions in Vietnam, which is applied to both domestic companies and FIEs.

Bui Thanh Tien

Bui Thanh Tien, a partner at Freshfields Bruckhaus Deringer’s Ho Chi Minh City office, says: “Developers in general, and FIE developers in particular, would usually require financing from various sources and in various forms. This is particularly true in the case of development of real estate and infrastructure, energy and high-tech projects. The funding requirements for these projects are huge and cannot be accommodated by local banks or foreign bank branches in Vietnam only.”

Nguyen Mai Phuong, a partner and head of the Hanoi branch at KPMG Law in Vietnam, points to the need for detailed regulations in the form of decrees and circulars on the state management of lending and borrowing activities, as well as the receipt and provision of land use rights and assets attached to land as secured assets by all subjects – Vietnamese credit institutions (banks), economic organisations and individuals.

“Credit institutions are required to submit reports to the State Bank of Vietnam and the other competent authorities on a periodical basis,” says Nguyen. “Economic organisations are also obligated to submit reports on their business activities and operations to the competent Vietnamese authorities, such as licensing and tax officials.

“But both banks and economic organizations do not have to submit reports on the lending and borrowing transaction involving taking and providing security over immovable assets right away. Although lending and borrowing activities between two people are regulated under the Civil Code, there is no provision requiring individuals to submit reports or legal documents on lending and borrowing transactions to any competent authorities.”

The 2024 Land Law has introduced a new rule allowing foreign-invested enterprises (FIEs) to acquire land use rights in industrial zones/parks for the registration of real estate projects. Bui Ngoc Anh, the Hanoi office managing partner of VILAF, says this means that FIEs with land use rights will now be able to transfer and to receive real estate projects to other FIEs and local Vietnamese companies within industrial zones/parks.

“This is one of the most important new developments in terms of project transfer relating to the land,” says Bui. “Most of the foreign investors in the past five or 10 years have invested in the industrial zones rather than outside for manufacturing and industrial logistics, mainly because of reasons such as land site clearance having been too complex and lengthy, and environmental concerns having encouraged them to locate in the industrial zones.”

Bui says the regulatory change may facilitate the exit of failing projects, thanks to FIEs’ ability to now transfer failing real estate projects to others, and generate new opportunities for the use of land.

The introduction of commercial arbitration for settling land- related disputes under the new Land Law might be music to the ears of foreign investors, according to senior law firm partners. While foreign arbitration for land-related disputes is expected to remain off limits, domestic arbitration offers an alternative to court proceedings, which can be time-consuming and complex.

According to Dentons LuatViet’s Tran, there are more than 14 commercial arbitration bodies in Vietnam, including the Vietnam International Arbitration Centre, for investors to choose from for setting disputes arising from land-related commercial activities.

“Particularly foreign investors prefer seeking land dispute resolution through commercial arbitration more than the court system,” she says.

But how those new rules will be implemented in practice is unclear, with both lawyers and their clients eagerly waiting for more details in the form of decrees and circulars to be issued by the state.

LNT & Partners’ Tran points to zero guidance on whether a shareholder loan could be used as a source of finance for real estate projects under the new Housing Law, which only mentions “direct foreign capital” as a legitimate financial source for housing development projects.

“In practice, there are some real estate developers that, when they implement a real estate project, also want to get loans from their mother company overseas,” he says.

As for the permission to seek financing from non-bank lenders, Freshfields’ Bui says that the situation still requires more clarification and implementing regulation on whether non-credit institutions, including foreign creditors, can take security over land and attached buildings and fixtures.

“If [local companies and FIEs] can access other foreign creditors, that can give them a lot of room to get financing,” he says. “That one is quite significant, at least for a lot of our foreign clients.”

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