More reforms urged to encourage FDI in Vietnam’s real estate market

Though the government’s policies have contributed significantly to raising the interest of foreign investors in the Vietnamese real estate sector in recent years, experts suggested revisions are needed to make the market more attractive to the investors.

more reforms urged to encourage fdi in vietnam’s real estate market hinh 0
According to experts, the Law on Housing and the Law on Real Estate Business have partially lifted the barriers for foreigners investing in Vietnam’s real estate market and thus opened the floodgate for foreign investment in the sector.

Kevin Hawkins, Co-executive partner of ZICO Law Vietnam, said though the new laws have brought about changes which are welcomed by foreign investors and encouraged more investment, it is realistic to expect that there is still room for improvement to increase the competitiveness in the sector.

Under the Law on Real Estate Business, foreign financiers are not permitted to transfer land use rights in the form of subdividing land into plots for sale, while national developers are allowed to do it, Hawkins said.

The law also expressly permits local developers to purchase houses and buildings for sale, lease-out or offer for lease-purchase while foreign investors are only permitted to sub-lease houses and buildings, he added.

Another regulation under the law also permits local developers to collect up to 70 percent of the value of the contract for sale and purchase or hire-purchase of real estate property to be formed in the future, while foreign developers are permitted to collect only up to 50 percent.

“The difference in treatment is not necessary and should be removed as it impairs competitiveness in the market,” Hawkins suggested, explaining the implementation of the relevant provisions in practice also renders the investment market less efficient than it should be, given that there are general rules applicable to both local and foreign investors, which may not be consistent with the restrictions on overseas funders.

More detailed, flexible regulations needed

Experts also propose there should be clarity and guidance on the definition of a foreign invested enterprise (FIE) as the Land Law 2013 defines them as joint ventures and enterprises wholly or partly owned by a foreign company but with no indication on the foreign ownership percentage which would render the enterprise an overseas entity.

Meanwhile, the Law on Investment 2014 provides that an economic organization with foreign ownership of 51 percent or more shall be subject to regulations applicable to foreign investors. As there is no certainty in the interpretation of the definition of overseas ownership or FIEs under the Land Law and the Law on Real Estate Business, confusion arises as to what restrictions are applicable and the compliance expected from these investors pouring money into various forms of establishment.

Guidelines should therefore be issued to make clear of the definition so that they can choose to fund, collaborate or set up a joint venture with local financiers and enjoy synergies derived from having local expertise to jointly develop the Vietnamese real estate market.

Related to regulations on foreign home buyers, experts suggested the government should adjust the limit on the number of apartments and houses owned by foreigners for certain kinds of products, such as resorts or Grade A apartments.

Nguyen Khanh Duy, Savills Vietnam’s HCM City residential sales director, said the State should have flexible quotas to create a positive dynamic for the local property market because Vietnam has a large number of foreigners working and living here as well as many overseas Vietnamese, who have high demand for buying housing products in the country.


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