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Sunday, May 29, 2022

Seeking an amendment to land law

By Nguyen Tien Lap (*)

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Once again, the Land Law has missed its chance to go to the National Assembly for an amendment. Is it true that lawmakers are divided over the direction of the land law? The current law has exposed shortcomings. Ultimately, it depends on how the law is examined, and its regulations and structure analyzed to adjust it.

From divided land lots to land fever

Reality shows that land has been divided into small lots for sale in the outlying districts’ areas, which has yet to turn into a residential area, and as such, its value is still low. Both sellers and buyers expect land prices to increase as the area will be developed into a residential area in the future.

By nature, that is a speculative activity to make a killing, much higher than the savings rate and safer than other financial investment channels. To some extent, a land lot is a true asset.

The speculation often goes with the movement, creating waves in the market, and a fake land fever is created by unprofessional brokers, not reflecting the supply and demand on the market. Most buyers are individuals who neither want to possess the land nor have investment knowledge, especially in property.

However, the speculation market has been attractive and popular for many years, becoming an interesting characteristic of the economy. Its attractiveness comes not only from its profitability but also from high risks. Meanwhile, what is interesting is big profit for speculators.

The root of the matter is the legal reason. The State decides the use purpose, the price, and the duration of land use. For example, land for agriculture is of low value and has the shortest period of use, followed by land for commercial purposes with higher prices and a longer duration of use. Meanwhile, land for residences has the highest price and permanent use.

The question is how the State decided the aforesaid elements. For the mid and long terms, this is the plan for land use and the plan for economic and social development. The plan has been published, but details and sometimes the overlapping of plans have created loopholes and opportunities for speculation.

When it comes to the State, one may ask who it entails. It is the local governments, the relevant departments and individuals who are competent to decide a specific case. They can be accessed to regulate the land use rights of a particular land lot. That is seen as a second chance. It is important because when buying a land lot with an unclear legal status, anyone expects the land lot to have a legal document, following which the selling price will go up, benefiting all buyers, sellers and local governments.

This can be seen clearly through speculation in dividing land activities.

The land auction in Thu Thiem

In terms of benefits, the auction mechanism to carry out a property project has been in place since the Land Law came out.

Meanwhile, the tender mechanism as prescribed by the Investment Law has drawn less interest. Localities prefer to auction land, for it can be done quickly with transparent procedures and raise a considerable sum for the state budget. Investors and banks can also benefit since they can increase their asset value and credit.

It was apparent to everyone that the auctioned land of Tan Hoang Minh Group in the Thu Thiem New Urban Area in HCMC, with a record high price, had a problem. Still, unfortunately, it is a shame that it was not easy to point out specific violations of law. For this reason, it is hard to support a standpoint that it should abolish the auction activity but continue to carry it out in tandem with the tender mechanism when developing big property projects.

Following the mechanism, evaluating the investors’ status and financial capacity will be done carefully, including financial sources. More importantly, it will not break the project’s financial structure, which was set aside at the beginning, ensuring the execution of the project, as well as minimizing speculation and capturing the market.

Which direction should the land law go?

Management agencies are concerned about land fever. But it is normal in the market, except for the fake fever. The grassroots solution is to amend the Land Law, but not to correct the technical terms which are used to overcome shortcomings and cover the loopholes in management by tightening after a period of loosening. Organizations that propose the land law amendment should not overindulge in daily matters and corollaries not to find a way out but to ensure strategic thinking.

The current Land Law has basically reflected the old thinking of planning, while the country has shifted to a market economy and integrated deeply in the world economy. The State is trying to intervene in the three phases, including the use purpose, the price and the duration of land use, instead of letting the market rules decide. The contradiction between the willingness of total management and the free market has led to the division of land lots for selling or joining an auction and then canceling the contract. Above all, this can cause corruption among interest groups, increasing the number of lawsuits.

The amendment of the Land Law should focus on two problems. First, the planning method should be changed. Instead of going into detail, the land use planning should classify which land lots are allowed or not allowed to develop a construction. The rest will depend on social and economic development. Second, the principle of property developed on the land lot should be made clear—the owner of the property will automatically own the land. This will minimize or help avoid contradiction between the land market, which is home to speculation, and the property market, which needs flexibility and freedom. Its effect is to turn land into a real source for sustainable development, as well as to make the asset ownership of people clearer and safer.

(*) partner of NHQuang and Associates, member of Vietnam International Arbitration Centre (VIAC)

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