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2024 三月 21

Vietnam Land Law 2024 – Key Changes from M&A/Foreign Investment Perspectives

On 18 January 2024, the National Assembly of Vietnam adopted the long-awaited amended Law on Land (the 2024 Land Law) in an extraordinary assembly. In doing so, the National Assembly completed the set of three key laws on real estate properties (the two other new laws which were adopted on 27 November late 2023 were the new Law on Real Estate Business (the 2023 Real Estate Business Law) and the new Law on Housing (the 2023 Housing Law). These new laws (the New Laws) will become effective on 1 January 2025, except that Articles 190 and 248 of the 2024 Land Law on land reclamation and on amendment to a number of provisions of the Law on Forestry, respectively, will become effective on 1 April 2024).

This note summaries the key changes in the 2024 Land Law (considering some of the relevant updates in the 2023 Real Estate Business Law and 2023 Housing Law) that are most relevant to foreign investment projects in Vietnam.

The Ministry of Natural Resources and Environment (MONRE) is working on various regulations to implement the 2024 Land Law. There will be at least 9 decrees to be issued by 1 January 2025, namely a: (i) decree on land reclamation; (ii) decree amending Decree 156/2018/ND-CP regarding the Law on Forestry; (iii) decree on implementation of a number of articles of the 2024 Land Law (i.e., an overall decree); (iv) decree on land pricing; (v) decree on land compensation; (vi) decree on land registration and land database; (vii) decree on handling administrative violations related to land; (viii) decree on land use fee and land rental; and (ix) decree on rice field land. The decrees mentioned in (i) and (ii) should be available before 1 April 2024. We intend to share more thoughts on these new regulations in other legal updates.

FIE categories and their rights

• FIEs categories - general. The current Law on Land (the 2013 Land Law), Law on Real Estate Business (the 2013 Real Estate Business Law) and Law on Housing (the 2013 Housing Law and together with the 2013 Land Law and the 2013 Real Estate Business Law, the 2013 Laws) refer to foreign invested enterprises (FIEs) without distinguishing, as the Investment Law does, between those under majority ownership/control and those under minority ownership/control.

The 2024 Land Law now defines FIEs (“tổ chức kinh tế có vốn đầu tư nước ngoài”) as those which are subject to “investment procedures applicable to foreign investors pursuant to [Article 23.1 of] the Investment Law”. This means that FIEs which are not subject to such procedures will have the same rights as purely domestic companies. This classification should simplify the real estate arrangements of companies that have minority foreign ownership. This approach is also contemplated under the 2023 Real Estate Business Law. [Article 3.46 of the 2024 Land Law; Articles 10.4 and 10.5 of the 2023 Real Estate Business Law]

• FIE developers of property projects may develop infrastructure for sale/lease. The 2023 Real Estate Business Law provides for certain additional specific real estate business activities that FIEs can do, namely developing technical infrastructure for sale or lease or for sublease of land with developed technical infrastructure. This right is not contemplated under the 2013 Real Estate Business Law. [See more in Box 2] [Article 10 of the 2023 Real Estate Business Law]
• FIEs’ ability to take transfer of land in IPs. The 2024 Land Law clarifies the rights of FIEs. They may acquire land in industrial parks, economic zones and high-tech zones (generally IPs) by way of a land use right transfer. They also may acquire real estate projects in which the land was allocated by the government against payment of a land use fee. These two rights were unclear under the 2013 Land Law. [Articles 28.1 and 119.3 of the 2024 Land Law]

Land acquisition: pricing and land rental payment mechanisms

• Only annual land pricing tables to be issued by local authorities. Under the 2024 Land Law, the concept of a “land pricing range” (or “land pricing bucket” (“khung giá đất”)), which would be issued by the Government on a 5-year term basis under the 2013 Land Law, is no longer used. The “land pricing table” (“bảng giá đất”), which would be issued under the 2013 Land Law by the provincial People’s Committee (PC) also on a 5-year term basis, will now be issued by the PC on an annual basis and based on market conditions. This should mean that the land costs to be charged by the government will be based more on the actual market value (i.e. a potential increase to land costs for project developers and land users as the cap under the current land pricing range will be removed).

Though the land pricing table is subject to adjustment annually, the 2024 Land Law contemplates that the land rent under land lease agreements between the land user and the competent government authority is adjustable every 5 years only. The annual rent for the subsequent period is based on the land pricing table of the year of the original rent determination, and not any revised task, but any increment will also be subject to a ratio to be promulgated by the Government (considering the annual CPI of the 5 years prior to the promulgation).

The first land pricing tables under the new law are due to be issued by the provincial PCs on 1 January 2026. [Articles 153 and 159 of the 2024 Land Law] 

• Limited cases of lump sum land rental payment. Unlike the 2013 Land Law which allows land users who lease land from the State to choose a land rental payment scheme – i.e. lump sum upfront (which gives the land user more land rights, e.g., to mortgage or transfer the land) or annual payment (which does not allow the land user to mortgage or transfer the land without assets having built on land) – the 2024 Land Law now permits the lump sum rental scheme to be applied to a limited group of projects only, namely: (i) agricultural, forestation or aquacultural projects; (ii) IP projects and projects of using commercial land for tourism or office purposes; and (iii) social housing for lease projects. Projects that do not fall within these groups, but in which land has been granted on a lump sum rental basis before 1 January 2025, will not be impacted, though investors of such projects may choose to switch to the annual payment scheme. [Article 120.2 of the 2024 Land Law]

In addition to restrictions on mortgage/transfer of the land like in the lump sum rental case, if projects are required to have an annual rental payment, it would impair the ability of investors to estimate the land costs for the whole duration of their projects because the land rent is subject to change. This new restriction may result in investors looking more at investment where lump sum rent would still be possible. That being said, it is not unusual in an international context for rent to be increased over time, particularly by reference to measures such as CPI. Over time therefore this issue may not have a significant effect on investor appetite.

Land recovery and compensation: higher standards and more agreements

• Land recovery. Article 79 of the 2024 Land Law lists out 31 specific groups of projects permissible for land recovery for socio-economic development purposes and provides that the National Assembly may amend this article to cover additional projects by a summary law-making process. Notably, projects to develop mix-used urban areas (“dự án khu đô thị hỗn hợp”) and rural residential areas (“dự án khu dân cư nông thôn”) that meet certain requirements in terms of large-scale infrastructure for mixed use or residential use are included in the list. This would give legal ground for the government to take land from existing users to grant the development of mixed-use or residential projects. [Article 79.27 of the 2024 Land Law]
• Residential land for commercial projects. The 2024 Land Law also sets out the legal basis for investors to acquire residential land for commercial residential projects by agreement with existing land users. Although the acquisition of non-residential land by agreement with existing land users for the purpose of developing commercial residential projects is not contemplated in the 2024 Land Law, the Government may consider and propose a pilot plan for the National Assembly to approve in respect of such arrangements. We understand that the MONRE has considered such a pilot programme in its action items for the implementation of the 2024 Land Law. [Article 127 of the 2024 Land Law]
• Land compensation. The 2024 Land Law imposes higher standards and requirements on land compensation to existing land users in respect of land for project development. The 2024 Land Law is clearer that land recovery can only occur once the land compensation plan and the resettlement of the affected land users have been completed. It is expected that overall land acquisition responsibilities and costs for developers will increase, and the process may be more time-consuming, as a result of this change. But on the other hand, project certainty and the fair treatment of existing land users could be enhanced significantly if the procedures are followed properly. [Article 80 of the 2024 Land Law]

Notable additional rights and obligations of land users

• More flexibility for corporate entities in granting security interests over land. Under the 2013 Land Law, mortgages by corporate entities to non-credit institution mortgagees were not recognised. The 2024 Land Law allows domestic land users that are allocated land by the government for a land use fee or that lease land from the government on a lump sum basis to mortgage the land use rights and assets built on the land to credit institutions authorised to operate in Vietnam and other economic organisations and individuals. Domestic land users who lease land on an annual rental payment basis are allowed to mortgage assets built on the land (but not the land use rights themselves) to the above mortgagees. These rights (subject to the respective land rental payment scheme) are also available to FIE land users that lease (i.e., IP developers) or sublease (i.e., their sublessors) land in IPs. However, the position in the 2013 Land Law that land use rights and assets that are attached to land cannot be secured in favour of foreign persons remains in the 2024 Land Law. [Articles 33, 34 and 43 of the 2024 Land Law]

This may give some more flexibility to land users (including FIEs in IPs) to seek financing from non-bank lenders and/or to restructure their investments through land and property value. 

• Contractual land leasing rights of annual rental land users recognised. In parallel with the limited cases for lump sum land rental payment scheme, the 2024 Land Law provides for certain additional rights of land users under the annual land rental payment scheme (annual rental land users). The law recognises the concept of “contractual land leasing rights” (“quyền thuê trong hợp đồng thuê đất”) of the annual rental land users and allows the transfer or lease of such rights together with the assets built on the land to a third party on certain conditions. This would give annual rental land users more flexibility to divest or restructure their investments by transferring the assets together with the land, as the new law clears the current obstacle that annual rental land users who transfer the assets on land are required to return the land to the local government authority and then procure the authority to lease out such land to the transferee. [Articles 34 and 46 of the 2024 Land Law] 
• Refund of land incentives to the government when transferring projects. The 2024 Land Law requires that, with respect to a land plot where certain incentives were given to the local developer in terms of exempt or reduced land use fee or land rental payment, if the developer transfers or makes capital contribution by way of land use rights over the land to another party, it will have to repay to the government an amount equal to the land use fee or rental exempt or reduced. This will implicate deals involving land originally granted with land use fee or rental incentives (e.g., “socialised projects” (“dự án xã hội hóa”) in certain sectors including education and health care) as the costs and steps to repay the incentive amount received back to the government could cause valuation and/or timing issues. The law has not set out details on how the refund should work – this should be further detailed in a decree to be issued by the government. [Article 33.3(b) of the 2024 Land Law] 
• Legal framework on land reclamation. Land reclamation (“hoạt động lấn biển”) remains a hot topic in Vietnam, but the current legal framework is light given the limited high-level provisions in Article 9 of the 2013 Law and in Decree 11/2021/ND-CP of the Government. The 2024 Land Law now contemplates a legal framework to govern projects of reclaiming land from the sea and projects using the reclaimed land. Requirements and procedures for licensing such projects and recognising and granting the land use right certificate (LURC) in respect of the reclaimed land will be promulgated in a new decree to be issued by the Government. Though the 2024 Land Law appears to envisage that projects of land reclamation are to be funded more by the government, large new projects of this type from this type may also come from the private sector. [Article 190 and other provisions of the 2024 Land Law]

Real estate project transfer: conditions and land transfer

• Project transfer procedures. The 2024 Land Law now contemplates procedures to be performed for transferring the land use rights as part of a project transfer. Detailed provisions on this will be promulgated in a new decree implementing the new law. The 2013 Land Law was silent on this, though the procedures for updating the relevant LURC following a project transfer were regulated under Decree 02/2022/ND-CP implementing the 2013 Real Estate Business Law. However, the fact that there seemed to be a regulatory gap between the 2013 Land Law and the real estate business decree has, in our experience, caused certain issues in the licensing processes for updating the LURC as a result of a project transfer.
• Project transfer prior to LURC. The 2023 Real Estate Business Law allows a real estate project developer to transfer the whole or a part of the project before the LURC for the project land or part thereof is obtained, provided that the relevant financial obligations have been paid to the government. This is not a substantial change (as in most of the cases payment of the financial obligations is the final condition to satisfy before a LURC is issued), but it could save the parties to a project transfer some time in completing the transaction because it does not require the transferor to be holding a LURC to transfer the land.

Amending the land term of investment projects before the expiry of the original term

Amending/extending vs renewing the land use term. At law, project land would normally be granted by the government for a specific term of up to 50 years (or 70 years in very limited cases).  The 2013 Land Law contemplates that the land term can be renewed (“gia hạn”) at the end of the term, but there are no procedures for extending the land term except where the end of the term is imminent (other than in some limited cases such as agricultural land and project transfer). This makes it difficult for investors who want to improve their existing project valuation by extending the project term (which is subject to the land use term) when the projects are closer to the end but do not yet reach the timeline for applying to renew the land term. The 2024 Land Law now contemplates specific procedures for the investor of a project to apply for amending the land use term (“điều chỉnh thời hạn sử dụng đất”) before the end of the term, and this application should be filed after the authority has approved the project duration extension.

Conditions for extending. The land use term extension may be granted on certain conditions, namely (i) the project is compliant with the land use plan at the local district level; (ii) the financial obligations to the government in respect of the land have been fulfilled; (iii) the project does not fall under the cases of land revocation under Article 81 of the 2024 Land Law (i.e., no breach of the land law); (iv) if applicable, the relevant authority has approved the amendment of the project duration; and (v) the applicable environmental protection requirements are met. [Article 175 of the 2024 Land Law]

Effect. That said, the practical effect is uncertain, given the law says in the same provision that the extended land term (“thời hạn sử dụng đất của dự án sau khi điều chỉnh”) should not exceed the maximum original land term (i.e., 50 to 70 years). [Articles 175.3 and 172 of the 2024 Land Law]

Delegation of powers: provincial authorities approve agricultural/forestry land conversion

The 2024 Land Law appears to enhance the delegation of powers to local authorities. A notable example is that, under the 2013 Land Law and the current laws on forestry, the change of land use purpose applicable to rice field land and forestry land in any large-scale project requires approval by the Prime Minister. The 2024 Land Law now removes this requirement and delegate the power of such approval to the provincial People’s Council (i.e., the local law-making body at cities and provinces), except in respect of those projects which are subject to the approval of investment policy by the National Assembly or the Prime Minister under the Investment Law and other applicable laws. This will be helpful for investors who are seeking to develop commercial properties on rice field land or forestry land as the process can be overseen locally without submitting anything to the central authorities. [Articles 122.1 and 247 of the 2024 Land Law. Note that Article 248 amending a number of articles of the Law on Forestry will be effective 1 April 2024]

Mechanism for using military/public security land for economic purposes

The current pilot programme for using military/public security land for economic purposes under Resolutions 132/2020/QH14 is now incorporated in the 2024 Land Law with some key changes, including (i) any project that uses military/public security land for economic purposes will be subject to the approval of the Minister of Defence (with respect to military land) or the Minister of Public Security (with respect to public security land) and (ii) the relevant military/public security companies having such projects may lease out, mortgage or make capital contribution by way of the assets developed on such land in accordance with any such approved plan. This could provide a clearer legal framework for commercial projects that are to be developed on military/public security land. [Article 201 of the 2024 Land Law]

Land dispute resolution forum

The 2024 Land Law now provides that disputes arising from commercial activities relating to land may be referred to the Vietnamese courts or Vietnamese arbitral tribunals (as opposed to the referral to the exclusive authority of courts for any disputes related to land with LURC or to assets attached to land under the 2013 Land Law). This gives the parties more flexibility in choosing a dispute resolution forum, though they still cannot refer to a foreign arbitral tribunal. [Article 236.4 of the 2024 Land Law] 

Land and property databases

The New Laws contemplate national databases on land and real estate assets. Certain information on land and land use rights and real estate assets will be stored in these databases and available for public access. These, therefore, could be helpful sources for the due diligence of land and real estate projects assuming they are easy to navigate and are kept up-to-date and complete. [Chapter XII of the 2024 Land Law]

Other - some notable transitional provisions

• Land users who were allocated land by the State without payment of a land use fee before 1 July 2014 (i.e., the effective date of the 2013 Land Law) but where the land is required to be leased under the 2013 Land Law and the 2024 Land Law will have to change the land use scheme to land lease. Further consideration is needed as to whether land in a current project must be changed to an annual or lump sum rental lease. [Article 255.3 of the 2024 Land Law]
• For those land users who have filed the application for land allocation or land lease or for change of land use purpose, and who have not been issued with a relevant decision before the effective date of the 2024 Land Law, the land allocation or lease or change of land use purpose procedures will be handled in accordance with the 2024 Land Law. [Article 255.7 of the 2024 Land Law]
• For those projects for which the investment approval has been issued in accordance with applicable laws before 1 July 2014, but the project land has not been granted, the local PC will review and confirm if the investment licensing process was compliant and the delay in land granting was not due to the investor’s default, if that is so confirmed, the land grant for such project will have to be done via an auction or bidding process under the 2024 Land Law. [Article 255.9 of the 2024 Land Law]