Real Estate Tax Policy in Vietnam: 10 Insights for Understanding the Challenges and Opportunities

 Vietnam’s dynamic economic growth and hot real estate market have drawn the attention of investors purchasing properties in Vietnam from both inside and outside the country. However, with the growing demand for property, the government is taking proactive measures to address concerns about housing affordability and market speculation. One of the most talked-about measures is the proposed taxation of secondary property ownership in Vietnam, a key part of the broader real estate tax policy in Vietnam.

In following, we will explore 10 crucial insights into the country’s evolving real estate tax policy, its potential implications, and what both investors and homeowners need to know. This deep dive will cover from the policy’s underlying rationale to the possible economic, legal, and social impacts it could have.

The Context of Vietnam’s Real Estate Market

Vietnam’s real estate market has grown exponentially over the past decade, fueled by rapid urbanization, a rising middle class, and increasing foreign investment. However, as with any fast-growing market, challenges have emerged. Rising housing prices, particularly in major cities like Hanoi and Ho Chi Minh City, have made homeownership increasingly unaffordable for many Vietnamese citizens.

As a response, the Vietnamese government has been working to adjust its real estate tax policy to ensure that the housing market remains accessible to the average citizen. One of the central components of these efforts is the taxation of second and additional properties, aimed at curbing speculative buying and selling.

The Rationale Behind Taxing Secondary Property Ownership

The main reason behind this proposed tax is to reduce speculation in the housing market. In cities across Vietnam, many individuals and companies purchase second, third, or even more properties, not for residential use but as investments. This speculative buying drives up housing prices, making it harder for first-time homebuyers to enter the market.

The real estate tax policy in Vietnam aims to address this issue by imposing taxes on secondary properties. The hope is that this will discourage speculative purchasing, thereby stabilizing housing prices and improving affordability for everyday citizens.

How the Real Estate Tax Policy in Vietnam Compares Globally

Vietnam’s possible move to tax secondary properties aligns with trends in other countries. It has been said many nations have introduced taxes on second homes or vacant properties to control housing prices and discourage speculative real estate investments.

By implementing similar measures, real estate tax policy in Vietnam would place the country in line with international practices aimed at creating a more sustainable housing market. However, the key question remains whether this tax will have the desired effect on speculation without discouraging investment in the real estate sector.

The Economic Implications of the Tax on Secondary Properties

The introduction of a tax on secondary properties could have a range of economic effects. On the one hand, it may succeed in slowing down speculative investments, thereby stabilizing the market and making homes more affordable. On the other hand, some experts worry that the tax could discourage both domestic and foreign investment in real estate, which has been a significant driver of Vietnam’s economic growth in recent years.

A well-balanced real estate tax policy in Vietnam will need to take these competing interests into account. If the tax is set too high, it could lead to a slowdown in construction and development, as investors may look elsewhere for opportunities. On the other hand, if it is too low, it may not have the intended effect of curbing speculation.

Potential Challenges in Implementing the Policy

While the theory behind the taxation of secondary properties is sound, implementing such a policy could present significant challenges. How will the government accurately track secondary property ownership? What systems will be put in place to ensure that people do not avoid paying the tax by registering properties under different names or through corporate entities?

Vietnam’s tax authorities will need to invest in new administrative capabilities to ensure that the real estate tax policy in Vietnam can be enforced effectively. Without robust enforcement, there is a risk that the policy will be easily circumvented, rendering it ineffective in achieving its goals.

Public Reaction to Real Estate Tax Policy in Vietnam

The proposed tax has already ignited significant debate among various stakeholders in Vietnam’s real estate market. Many homeowners, particularly those who own multiple properties as long-term investments, are opposed to the tax. They argue that it unfairly penalizes individuals who have worked hard to accumulate assets and could lead to a loss in the value of their properties.

On the other hand, housing affordability advocates and first-time buyers welcome the potential change. They see the tax as a necessary step to cool down the overheated housing market and make homeownership more accessible to young families and middle-class workers.

Legal Considerations of Real Estate Taxation in Vietnam

From a legal perspective, the proposed real estate tax policy in Vietnam will likely require reforms to the country’s tax system. For example, clear definitions will need to be established regarding what constitutes a “secondary property.” Will properties owned by family members count as separate or joint ownership? Will the tax apply equally to residential and commercial properties?

Additionally, Vietnam’s legal framework will need to be updated to address potential loopholes. The government will need to anticipate how individuals and corporations might attempt to avoid the tax and put safeguards in place to close these loopholes before the policy is implemented.

Social Equity and Fairness in Real Estate Taxation

A key argument in favor of the proposed tax is that it promotes social equity. By taxing secondary properties, the government hopes to reduce the concentration of real estate ownership among a small group of wealthy individuals and corporations. This, in turn, could help level the playing field and give more Vietnamese citizens the opportunity to own homes.

Critics, however, argue that the real estate tax policy in Vietnam may disproportionately affect small investors who own a second property as a long-term retirement investment. Ensuring that the tax is fair and does not place an undue burden on the middle class will be crucial to its success.

The Role of Foreign Investors in Vietnam’s Real Estate Market

Foreign investment has played a significant role in the growth of Vietnam’s real estate sector. International companies and individuals have been drawn to Vietnam’s rapidly growing economy and the potential for high returns on real estate investments. However, the introduction of a tax on secondary properties may lead some foreign investors to reconsider their involvement in the Vietnamese market.

For foreign investors, the real estate tax policy in Vietnam represents both a challenge and an opportunity. While the tax may increase the cost of investing in multiple properties, it could also stabilize the market, reducing the risk of a housing bubble and creating a more sustainable investment environment in the long term.

The Future of Real Estate Tax Policy in Vietnam

As Vietnam continues to develop its real estate tax policy, it will need to balance the needs of homeowners, investors, and the broader economy. The success of the policy will depend on its implementation and the ability of tax authorities to enforce it fairly and effectively.

For now, the future of real estate tax policy in Vietnam remains uncertain, but it is clear that the government is committed to addressing the challenges facing the housing market. Whether through taxation, incentives for affordable housing, or other measures, Vietnam’s real estate sector is entering a period of significant transformation.

The evolving real estate tax policy in Vietnam represents a crucial moment for the country’s housing market. While the proposed tax on secondary properties has generated both excitement and concern, it is part of a broader effort to create a more equitable and sustainable real estate environment. By understanding the challenges and opportunities presented by this policy, investors, homeowners, and policymakers can work together to ensure a balanced and prosperous future for Vietnam’s real estate market.

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8 Key Highlights of the Amended Land Law

 

What Are Changes in Land Law?

Land law serves as a fundamental pillar in the socio-economic structure of any nation, and Vietnam is no exception. As Vietnam continues to experience rapid industrialization and urbanization, the importance of a robust and adaptive Land Law becomes increasingly paramount.

On the morning of January 18, at the closing session of the 5th extraordinary meeting of the 15th National Assembly, with 432 out of 477 delegates approving, the National Assembly passed the amended Land Law, which will come into effect from January 1, 2025.

According to the Ministry of Natural Resources and Environment, the amended Land Law includes 16 chapters with 260 articles, amending and supplementing 180 out of 212 articles of the 2013 Land Law and adding 78 new articles.

The amended Land Law has institutionalized the Party’s guidelines, resolving difficulties and problems identified during the summary of the implementation of the Land Law. The new contents include:

Land Policies for Ethnic Minorities According to the Ministry of Natural Resources and Environment, the amended Land Law has specified regulations to institutionalize the Party’s policies on land for ethnic minorities.

Accordingly, the law has stipulated policies to ensure communal living land; allocation and leasing of land for ethnic minorities lacking residential and production land; responsibilities of state agencies in developing and implementing land support policies for ethnic minorities.

The amended Land Law also prescribed resources to implement policies; ensure land funds to carry out land policies for ethnic minorities; and set restrictions on some rights of land users in cases where land is allocated, leased, or changed in use purpose under land support policies for ethnic minorities…

The amended Land Law specifically regulates policies to support residential land, agricultural production land, and non-agricultural business land for individuals who are ethnic minorities living in poverty or near-poverty in ethnic minority and mountainous areas.

Forms of land allocation include: allocation of residential land within the limit; allowing the change of land use purpose to residential land within the land limit for land originating from state allocation, lease, recognition, or acquired through inheritance, donation, transfer of land use rights as prescribed by law; allocation of agricultural land within the limit; leasing of non-agricultural land that is not residential for business purposes.

For those who have been allocated or leased land for the first time but now have no land or lack land, they are to be further allocated residential land within the limit, allowed to change the use purpose to residential land within the limit; further allocation of agricultural land within the limit or leasing of non-agricultural land that is not residential for business purposes.

The law also stipulates that ethnic minorities who are beneficiaries of policies shall be allocated land by the state without charge for land use.

On Planning and Land Use Planning According to the Ministry of Natural Resources and Environment, the amended Land Law has perfected the regulations on planning and land use planning, ensuring this is the foundation of the state management of land.

Specifically, the law has supplemented and completed the principles of land use planning to ensure the consistency of the planning system. Land use planning and plans are developed at three levels: national, provincial, and district.

Higher-level land use planning ensures the land use needs of the lower levels; lower-level land use planning must conform to the higher-level land use planning.

The development of land use planning and plans at all levels must ensure the participation of political-social organizations, communities, and individuals; ensure openness and transparency. Land use planning at all levels is developed simultaneously; higher-level land use planning must be decided and approved before lower-level planning.

The amended Land Law continues to regulate the development of annual district-level land use plans, but the provisions are simplified, not requiring the annual district-level land use plan to include the demand for change of land use purpose associated with residential land of households and individuals.

Furthermore, the law supplements the list of projects for compensation, support, and resettlement separated from investment projects as prescribed by public investment law in the content of annual district-level land use plans.

The law also enhances the openness, transparency, and public participation in land use planning by organizing consultations; supplementing and completing regulations on the implementation of land users’ rights in planning areas. Accordingly, if land use planning has been announced but the annual district-level land use plan is not yet available, land users can continue to use and exercise their rights.

The law also provides that the land area determined in the annual district-level land use plan that has been approved by the competent authority for project implementation or for change of land use purpose, if after two consecutive years has not been decided upon for land recovery or not permitted to change land use purpose, the competent authority that approved the plan must review, evaluate, adjust, cancel, and must announce the adjustment, cancellation for the public knowledge.

If there is no adjustment, cancellation, or there is an adjustment, cancellation but it is not publicly announced, the land users are not restricted in their rights to use the land as prescribed by law.

Regarding land allocation, leasing, and conversion of land use purposes

The amended Land Law has added many bases for land allocation, leasing, and permission to change land use purposes. For cases where the state allocates land without collecting land use fees, the law specifies the subjects who are allocated land by the state without land use fees for constructing state agency headquarters. Additionally, three cases have been added, including: allocating land for agencies, organizations to implement public housing projects; allocating land to ethnic minorities who are beneficiaries of policies; and allocating land for religious purposes as compensation for cases where the state recovers religious land.

For cases where the state allocates land with land use fees, the law also adds three instances, including: economic organizations allocated land to implement commercial housing projects, social housing, housing for the armed forces; investment projects for renovation and reconstruction of apartment buildings; constructing facilities for storing ashes.

The second case is for overseas Vietnamese and foreign-invested economic organizations allocated land to implement commercial housing projects as per the housing law; using land received through the transfer of real estate projects as per the real estate business law for cases where the state allocates land with land use fees.

The third case is for households, individuals, overseas Vietnamese allocated land as land compensation when the state recovers land.

Regarding cases where the state leases land, the law also specifies the instances where the state collects a one-time land lease fee for the entire lease period. At the same time, it specifies cases of land allocation and leasing that must go through bidding or auction and cases where land allocation and leasing do not require going through these processes.

Regarding the conversion of land use purposes, the Ministry of Natural Resources and Environment indicates that it has been controlled by the amended Land Law from the planning and land use planning stages, with provisions that the content of district-level land use planning must specifically determine the area of land allowed for conversion of use.

The conversion of land use purposes is also controlled from the step where competent authorities organize investment policy decisions, land use rights auctions, and investor selection for projects through regulations on decisions to allow the conversion of land use purposes based on investment policy decisions, auction results of land use rights, and results of investor selection for project implementation.

The amended Land Law also specifically regulates cases of land use for commercial housing projects through the mechanism where the state recovers land to organize auctions of land use rights, tendering for investor selection for the project, conversion of land use purposes for those currently having land use rights for residential land, and other types of land.

The amended Land Law also provides for the amendment of some articles of the Forestry Law to centralize the entire authority to approve the conversion of forest use purposes to the Provincial People’s Councils.

Why Land Law is Important in Vietnam?

The Land Law in Vietnam governs the allocation, use, and management of land, which is a critical resource for agricultural productivity, industrial development, and urban expansion. It establishes the framework for land ownership rights, usage regulations, and the responsibilities of land users. Given that all land in Vietnam is owned collectively by the people and managed by the state, the Land Law provides the necessary legal guidelines for the state to regulate land use effectively.

An updated and well-structured Land Law is vital for several reasons. Firstly, it underpins economic development. With clear land use regulations, investors and businesses have the confidence to invest, knowing their land rights are protected. This attraction of investment is crucial for the growth of Vietnam’s economy, providing job opportunities, enhancing productivity, and contributing to national revenue.

Secondly, the Land Law plays a significant role in agricultural reform. It enables the restructuring of land for agricultural efficiency, allowing for larger farming plots and more effective cultivation, which can lead to increased agricultural output and better food security for the nation.

Thirdly, it is critical for urban planning and sustainable development. As cities expand, the need for planned urban growth becomes essential to avoid haphazard development and ensure the sustainable use of land resources. The Land Law facilitates this by setting out the planning requirements and ensuring that land is used in a way that is beneficial for social and economic progression while preserving the environment.

Fourthly, the Land Law in Vietnam ensures social equity and stability. By providing a legal framework for land allocation and use, it helps prevent land disputes which can arise from unclear land regulations. This is particularly important in Vietnam, where land-related issues are among the most common causes of disputes and protests.

Finally, the Land Law addresses environmental concerns by incorporating land use strategies that contribute to environmental protection and sustainable land management. It is pivotal in regulating the exploitation of natural resources, conserving biodiversity, and mitigating the impacts of climate change through proper land use planning and management.

In conclusion, the Land Law in Vietnam is not merely a set of rules governing land transactions; it is a strategic instrument that shapes the country’s development trajectory. It ensures that land resources are used efficiently and responsibly, aligning with the broader goals of economic growth, social justice, and environmental sustainability. As Vietnam moves forward, the ongoing evolution of its Land Law will continue to be a key driver in its journey towards a prosperous and equitable society.

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Adding Foreign Subjects to Own Resident Houses in Vietnam

 The Draft Law on House (amended) has currently taken lots of attentions of not only investors but residents. One of the significant amendments is provision on house ownership of foreign organizations, individuals.

According to Articles 161, 162, 163 of Draft Law, there are 3 cases that the foreigners may own resident houses in Vietnam as following:

1. Foreign organizations, individuals invest the construct resident houses according to projects for sale, lease, hire-purchase sale.

2. Foreign owned enterprises, branches, representative offices of the enterprises without business in real estate, foreign investment funds and branches of foreign banks permitted to operate in Vietnam are entitled to buy, donate, inherit the commercial houses in projects of resident houses development, new urban areas, tourism real estate.

3. Foreign individuals who are allowed to enter Vietnam, not belong to incentive rights, diplomatic or consular immunity.

However, subjects at section 2 and 3 are eligible to own houses in maximum term of 70 years, from the issuance date and can extend according to laws at that moment. They are not allowed to buy and own social houses, just buy and own commercial houses. They are also eligible to own unlimited number of commercial houses in commercial resident house development projects, new urban area or tourism real estate. These new provisions will become important points for real estate market in Vietnam. Especially, the foreign individuals are allowed to enter Vietnam, entitled to buy and own resident houses in Vietnam. It’s expected to make a big change in real estate in Vietnam when the new Law on House (amended) is adopted. ANT Lawyers, your lawyers in Vietnam.

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