Vietnamlawmagazine

The possibility to boost foreign direct investment is closely related with the openness of the land law, particularly a fair access to land between domestic and foreign investors. Dr Dang Hung Vo, former Deputy Minister of Natural Resources and Environment, discusses on Vietnam Investment Review on how to renew land policies to attract foreign direct investment (FDI) while increasing land use efficiency.

The National Assembly passed three land laws in 1987, 1993 and 2003 and two revised land laws in 1998 and 2001 and is expected to ratify the fourth land law in October. It introduced two foreign investment laws in 1987 and 1996 and revised the law in 1990, 1992 and 2000. It also promulgated the Investment Law in 2005.

In 1987, the National Assembly approved both the Land Law and the Foreign Investment Law but the Land Law provided no specific land policies for FDI projects.

In 1993, the second Land Law came out, containing a separate chapter on land use by foreign parties, including FDI projects. In general, FDI projects could only rent land from the State to make investment on such land.

A year later, the National Assembly Standing Committee issued the Ordinance on the Rights and Obligations of Foreign Organizations and Individuals Renting Land in Vietnam. The ordinance allowed foreign investors to make transactions on assets invested in their rented land, but not on land use rights.

Other regulations on land use by foreign investors remained unchanged until 2003 when the third Land Law was passed in light of raising the effectiveness of national industrialization and modernization. The 2003 Land Law removes the separate chapter on land use by foreign organizations and individuals to promote fair access to land between foreign and domestic investors.

The Government has also introduced a number of decrees allowing foreign investors to make commercial housing investment and access land through land recovery by the State, including Decrees No. 197/2004/ND-CP, No. 84/2007/ND-CP and No. 69/2009/ND-CP.

Nevertheless, there remain differences in rights and obligations between domestic and foreign investors.

By 2010, foreign investors had used nearly 56,000 ha of land, including over 30,500 ha of agricultural land, mostly in the southeastern region, northeastern region and northern delta region. Of the total, around 36,500 ha were used by wholly foreign-owned enterprises and over 19,000 ha by foreign-invested joint ventures.

Impacts on FDI

From statistics released by functional agencies, it is noteworthy that:

Disbursed FDI capital was relatively high during 1993-1994 as a result of the introduction of the Land Law and the Ordinance on the Rights and Obligations of Foreign Organizations and Individuals Renting Land in Vietnam, which provided specific provisions guaranteeing a stable investment environment in Vietnam.

The disbursement of FDI capital then plunged in 1998 and recorded a slow growth after that.

From 2004, disbursed FDI capital rose again given the openness of the 2003 Land Law, which expanded foreign investors’ rights, and grew sharply in 2007 and 2008 as the Government had created a truly fair playground for domestic and foreign investors in property development projects.

Finally, disbursed FDI slowed down again over the last three years.

Renewal of land law to lure FDI

According to World Trade Organization principles, Vietnam must, sooner or later, develop a land law ensuring fairness among investors. From the differences mentioned (see table), below are recommendations to further renew land policies to secure equality for all investors:

First, land recovery should be replaced with land requisition by the State. This mechanism is only applicable to projects for defense, security, and national or public interest.

Second, investors of for-profit projects may only access land through transfer, lease or capital contribution by current land users as agreed with the latter. When agreement is reached with at least 80% of current land users, investors should be allowed by the State to apply compulsory transfer to remaining disagreeing land users. The compulsory transfer prices are set by competent state authorities.

Third, both foreign and domestic investors should be allowed to opt to rent land with lump-sum or annual rent payment to implement investment projects of a definite term. Rents of residential land are equal to the residential land use levy applicable to commercial housing projects.

Next, both foreign and domestic investors should be permitted to receive land transferred from economic organizations, households or individuals within the approved locations of projects.

Finally, investors should have the right to make transactions on land rented from the State with lump-sum rent payment and on land transferred, rented or contributed as capital. The right to make transactions should last till the end of the land use duration.(VLLF)-

Similarities and differences in the land law applicable to domestic and foreign investors