What are the essential conditions for removing real estate market difficulties?

Nguyen Van Dinh, deputy chairman of the Vietnam Real Estate Association

The real estate market in the first quarter of 2023 displayed positive signs due to a succession of government interventions. The government has, as of this month, established a working party to examine the challenging situation of enterprises and municipalities with project problems.

The government also has a plan to withdraw capital issues from businesses, with the State Bank of Vietnam tasked with deploying a $5 billion preferential credit initiative for social housing development and worker housing with market-beating interest rates. This is an effective market-supporting solution at this time.

Currently, the government is adjusting the legal framework for real estate mergers and acquisitions activities to avoid overlap with legal documents; concurrently, it is encouraging businesses to restructure their production and business activities, as well as their product lines, so that they are easier for the market to accept.

In the past, numerous businesses revealed vulnerabilities, and numerous projects could not afford to continue implementing them, so the demand for mergers and acquisitions to transition projects was very high.

These positive indicators are required, but are insufficient to resolve the most significant problems in the current real estate market. According to a recent survey conducted by the Real Estate Training and Research Institute, 65 per cent of real estate businesses’ difficulties stem from legal and policy issues, 20 per cent from capital sources (primarily due to the influence of current financial policies), and 15 per cent from market and business factors.

Is the delayed amendment of the Law on Land the primary cause of the current real estate market stagnation?

Part of the reason is the Law on Land, which resonates with the related provisions of numerous other treatises, results in policy obstacles that have stalled the current real estate market. Consequently, this law alone cannot resolve the legal issues plaguing the market.

During 2011-2013, the real estate market was plagued by an oversupply crisis in which many products could not be assimilated. In contrast, there is currently a deficit of commodities, an irregular development of market segments, and a dearth of suitable products. All of these issues are caused by the legal system and policies.

Has there been insufficient effort to identify the legal regulations that have affected the real estate market?

Legal issues are the leading cause, which the government continues to eliminate through suitable regulations. For example, take Decree No.10/2023/ND-CP, the document that eliminates some obstacles of a previous decree.

Currently, Vietnam is amending and supplementing numerous real estate-related laws, including those on land, housing, and real estate, as well as a number of others. However, this is not a narrative that can be concluded in one sitting, as revising legal regulations is difficult.

A portion of the legal issues have been resolved, but the market still requires additional new legal documents similar to Decree 10, the premise for local governments to address issues such as project approval. According to the Ministry of Construction, there are presently over a thousand initiatives with legal issues in the country.

Numerous initiatives are currently awaiting the sanction of financial obligations to commence construction immediately. This is one of the most challenging issues localities must address to activate the supply and stimulate economic activity through the construction or sale of real estate projects. As a result of the inability to process documents, localities are almost immobile. A lack of supply is causing the market to become unbalanced as a result.

What should the focus of the new legislation be?

I believe that all bottlenecks associated with the approval of investment preparation procedures for real estate projects, including bidding, auctions, investor selection, land allocation, the calculation of use fees, and the issuance of construction permits, are issues that are causing local authorities great difficulty.

In light of the current circumstances, authorities must address the legal issues of the real estate market more quickly and in greater detail, particularly in social housing, a market-activating segment that is severely deficient in terms of transactions.