Prime Minister Pham Minh Chinh has recently given directions for the Ministry of Natural Resources and Environment to lead and coordinate with the Ministry of Construction and relevant agencies to study the establishment of a land use rights exchange.

Positive Signals

Real estate transactions must be handled through the real estate exchange, according to Article 57 of the draft Law on Real Estate Business (amended). As a result, investors selling, leasing, or acquiring future residential homes, as well as transferring or leasing rights to utilize property with existing technological infrastructure in real estate developments, must use the real estate exchange.

Furthermore, the draft Law states that the state encourages organizations and individuals to use real estate exchange to buy and sell, transfer, lease-purchase, and lease residential properties, construction works, and land use rights that do not fall under the provisions of this Article. In comparison to present legislation, this is a new rule.

Dr. Pham Anh Khoi, a financial and real estate specialist, commented on the decision, saying that Vietnam already has stock exchanges, commodities exchanges, and bond markets, all of which are proving to be very productive and advantageous for all parties concerned. Buyers and sellers are not deceived by pricing, and they save time and money.

According to Dr. Khoi, up to 99% of real estate assets in industrialized nations are exchanged through exchanges rather than directly between buyers and sellers. Private markets in Vietnam have mostly exchanged future real estate assets without use rights (apartments, project homes), whereas landed properties and land use rights have not been traded.

Mr. Ngo Duc Son, CEO of DRH Holdings JSC, sees the government's intention to establish a land use rights exchange as good news for the real estate market as well. Assets such as land use rights must be rigorously validated before being exchanged, establishing clear and transparent transaction methods that protect both purchasers and sellers. Buyers may quickly obtain usage rights alongside notarization in a same transaction, minimizing administrative procedures. The exchange also assists in land price management and taxation, decreasing losses in tax reporting.

According to the Vietnam Real Estate Brokers Association, executing transactions through the real estate market would establish new channels for capital mobilization for investors, such as the conversion of project-based bonds for future real estate projects, with advantageous methods and rules. As market capitalization and market participation rise, attracting international investment and efficient investment instruments such as Real Estate Investment Trusts (REITs), real estate securitization, and housing savings funds become possible.

How Will the Operational Mechanism Work?

Mr. Ngo Duc Son, on the other hand, proposes that while analyzing the formation and operation of the land use rights exchange, the management authorities should address certain concerns, such as how the organizational structure should be set up. How will transactions be handled when the asset concerns land use rights and property ownership? Is it mandatory for individuals and corporations to execute land use rights transactions through the exchange? Various rules and regulations concerning land, notarization, residential and commercial assets are still in flux.

Dr. Pham Anh Khoi also expresses worry about how the operating system would function. Who will be in charge of it? Will the exchange be privatized or administered by the government? "The key to attracting participation from individuals, businesses, and organizations with land use rights assets is transparency and openness." Furthermore, an appealing and market-oriented incentive structure is required to attract players, especially overseas investment. This would benefit the Vietnamese real estate industry," he said.

Dr. Pham Anh Khoi suggests that the authorities handle challenges and hurdles in real estate assets before advancing with the exchange's formation. Before incorporating land use rights into the trade, people and corporations must first establish property rights.

"The crucial point lies in how the operational, technical, and legal mechanisms are designed for optimal convenience. While the government's intention is to benefit the market, sometimes the mechanisms put in place might result in excessive requests. If the process of buying and selling land use rights through the exchange includes cumbersome requests, it will undoubtedly hinder the participation of stakeholders. Hence, once the government establishes and operates the land use rights exchange, the best mechanisms should be in place to encourage, rather than enforce, participation, to ensure that the transactions align with the initial objectives," analyzed Dr. Khoi.

Mr. Pham Lam, Vice Chairman of the Vietnam Real Estate Brokers Association, expresses the view that the biggest challenge of this land use rights exchange lies in establishing a rational and trustworthy operational mechanism in a context where numerous legal issues related to real estate assets are not yet complete.