Restrictions on Foreign Property Ownership

Restrictions on Foreign Property Ownership

The state grants various types of ownership and quasi-ownership interests in respect of land in Vietnam to various persons and entities, including:

  • Vietnamese organisations
  • Vietnamese households and individuals
  • Vietnamese communities
  • Vietnamese religious establishments
  • Foreign organisations with diplomatic functions
  • Overseas Vietnamese
  • Foreign-invested enterprises

It should be noted that foreign individuals are no longer recognized as land users under the Law on Land 2013.
In Vietnam, there are two broad categories of ownership, or
quasi-ownership, interests that can be held in respect of real property, namely:

  • “Land use rights” (LURs), which relate to land and entitle the holder exclusively to use and deal with the land in a specified manner.
  • “Ownership of houses and assets attached to land” (“building ownership”), which relates not to the land itself, but to the buildings and other structures attached to land.

There are two main categories of LURs that may be held in Vietnam, being:

  • Land allocated by the state (“allocated land”)
  • Land leased by the state (“state leased land”)

A subset of allocated land is land recognized by the state as having been stably used by persons or entities over a lengthy period (“stable use land”).

Until recently, different types of ownership or quasi-ownership interests in land as well as buildings and structures attached to land were evidenced by different kinds of certificates. A unified certificate (“unified certificate”) may evidence that its holder enjoys:

  • LURs in respect of the land specified in the unified certificate
  • Ownership of the house/s or apartment/s specified in the unified certificate
  • Ownership of the construction works specified in the unified certificate
  • Ownership of the “artificial forest” (“plantation”) specified in the unified certificate (for production purposes)

The holding of LURs in the form of allocated land is to be regarded as being the closest approximation to freehold interests available in Vietnam. LURs in the form of
allocated land can be allotted for a fixed term or an indefinite term. It must, however, be remembered that holding LURs in the form of allocated land is technically not tantamount to freehold ownership, as the Constitution of Vietnam specifies that all land in Vietnam is owned by all of the people of Vietnam and is administered by the state on behalf of the people.

The holding of LURs in the form of state leased land is to
be regarded as a type of quasi-ownership interest, notwithstanding that such rights are technically leasehold rights. State leased land is generally leased to the Vietnamese LUR holder for a term of between 50 and 70 years, with such lease terms renewable only at the discretion of the Department of Natural Resources and Environment or other relevant government authority.

As a general rule, fully or partially foreign-owned companies are not granted LURs in the form of allocated land, but are
granted LURs in the form of state leased land or land subleased from the licensed infrastructure developers, except in the case of implementation of investment projects for the construction of houses for sale or for a combination of sale and lease.

An FIE is issued with the unified certificate for a term of the land lease not exceeding the investment term provided in
the FIE’s IRC, which is usually not longer than 50 years, with an extension of no longer than 70 years. In the case of
implementation of investment projects for the construction of houses for sale or for a combination of sale and lease, the term of land allocation is subject to the investment term. The FIE can either directly lease the land from the provincial or municipal people’s committees, or
sublease the land with the constructed infrastructures from the licensed infrastructure developers in the industrial, export processing zones.

While the land price framework shall be determined by the
government every five years, the provincial people’s committees shall have the authority to annually set out the land price list applicable to their province or city every five years and determine the specific land price.

It should also be noted that the LUR of a foreign investor varies depending on the form of land use and the payment arrangements of the land rental. The Law on Land contemplates two payment arrangements of land rentals:

  • Annual rentals payments (“annual payment”)
  • One-off payment of rental for the entire lease term (“one-off payment”)

Under a land lease for annual payment, an FIE has the following rights:

  • The general rights and obligations of land users as provided in the Law on Land 2013.
  • To mortgage their assets attached to the leased land at credit institutions which are licensed to operate in
    Vietnam, and to contribute as capital their assets attached to the leased land. The recipient of the capital contribution may lease land from the State for a determined purpose for the remainder of the lease term.
  • To sell their assets attached to the leased land upon fulfillment of specific requirements.
  • To lease houses if they are permitted to invest in the construction of and trading in houses.

While an FIE only has limited rights over the assets on the land under the annual payment regime, an FIE adopting the one-off payment regime and an FIE being allocated with LURs (in the case of implementation of investment projects for the construction of houses for sale or for a combination of sale and lease) can enjoy a broader scope of rights in relation to LUR and assets on the land, as follows:

  • The general rights and obligations of land users as provided in the Law on Land 2013
  • To transfer land use rights and land-attached assets under their ownership during the land use term
  • To lease and sublease land use rights and land-attached assets under their ownership during the land use term
  • To mortgage land use rights and land-attached assets under their ownership at credit institutions which are licensed to operate in Vietnam during the land use term
  • To contribute land use rights and land-attached assets under their ownership as capital for cooperation in production and business during the land use term

An FIE that has been granted an investment certificate in
relation to a specific residential urban development project is allowed to assign the LUR, with respect to independent houses and/or villas, to eligible house owners, provided that such FIE has completed the construction of the infrastructure and satisfied all of the criteria to assign the LUR in accordance with the approved real estate development project. In such case, the LUR assignees will be granted the certificate over the LUR and the assets on land (if any), i.e., the unified certificate. In addition, a master real estate developer in a residential urban development project with completed infrastructure may transfer the LURs in relation to subconstruction works in the approved project to another corporate entity for the later entity to continue the subproject developments.

An FIE can sublease land from the licensed infrastructure developers in the industrial parks, industrial clusters, export processing zones, high-tech zones and economic zones under either the annual payment or the one-off payment method for the entire term of the land lease, subject to the approval of the relevant state management authorities. An FIE can sublease land to eligible entities. The rights and obligations of an FIE in relation to subleased land under the annual payment method are as same as those associated with annual rental payments for land. Meanwhile, an FIE in relation to subleased land adopting the one-off payment method has the same rights and obligations associated with one-off rental payment for land.

As from 3 March 2017, an FIE which (1) leases land from the Government under the annual payment method; leases or
subleases land in an industrial zone/export processing zone under the annual payment method and (2) have been granted with the LUR Certificate will be entitled to lease its assets attached to such land upon the satisfaction of the requirements under the laws on real estate business. The lessee must use such assets for the purposes which have been specified in the relevant land lease decision of the Government or signed lease/sublease contract entered into by the lessor.

In a build-transfer (BT) project in the infrastructure sector, the state allocates to the investor an area of land to implement such project. In this case, the investor is not required to pay land use fees or land rent during the
construction of the work in accordance with the approved project and is responsible to preserve the area of land
allocated for management and to use it in strict accordance with the purpose stated in the project.

The transfer of the work and land fund of the project must be carried out in strict accordance with the schedule stated in the investment project approved by the state authority or the term which has been permitted by the state authority for extension. In the case where the investor has not transferred after the time-limit for transfer, the investor must lease land from the state, with the time of land lease
calculated from the time of completion of the work construction duration in accordance with the approved project.

In a build-operate-transfer (BOT) project, the state allocates or leases land to the investor to implement such project. In this case, the investor is entitled to exemption or
reduction of land use fees or land rent.

It is important to note that there are seven entities which are not eligible to receive a certificate of land use rights and certificate of ownership of houses and other assets attached to land:

  • Organisations and communities that are allocated land by the state for management;
  • Persons who are managing and using agricultural land belonging to public-utility land funds of communes, wards or townships;
  • Persons who lease or sub-lease land from land users, except cases of leasing or subleasing land from investors building and dealing in infrastructure facilities in industrial parks, industrial clusters, export processing zones, hi-tech parks or economic zones;
  • Persons who receive land for use on a contractual basis in agricultural or forestry farms, agricultural or forestry enterprises, protection forest management boards or special-use forest management boards;
  • Current land users that fail to fully meet the conditions for the granting of certificates of land use rights and ownership of houses and other land-attached assets;
  • Land users that fully meet the conditions for the granting of certificates of land use rights and ownership of houses and other land-attached assets but have received land recovery notices or decisions from state authorities;
  • Organisations and commune-level people’s committees that are allocated land by the state without land use levy for the purpose of construction of public facilities, including roads; water, petrol, oil and gas pipelines; power transmission and information communication lines; outdoor entertainment and recreation centers; cemeteries and graveyards for non-commercial purposes.

The Law on Housing 2014 permits foreign organisations and individuals within certain categories to purchase and own residential houses in Vietnam as follows:

  • In the case of a commercial apartment, the number of apartments to be purchased and owned by one foreign organisation and one individual shall not exceed 30% of the total number of apartments in one building
  • In the case of a separate residential house, the number of
    houses to be purchased and owned by one foreign organisation and one individual shall not exceed 250 houses in an area equivalent to a ward level (Ward Area). In particular:

    • If there is only one project with not more than 2,500 separate houses in a Ward Area, then the foreign buyers are only permitted to own up to 10% of the total number of separate houses of such project.
    • If there is only one project with the number of separate houses equivalent to 2,500 houses in a Ward Area, then the foreign buyers are only permitted to own up to 250 houses.
    • If there are two or more projects with a total of 2,500 or fewer separate houses in a Ward Area, then the foreign buyers are only permitted to own up to 10% of the number of houses in each project.

However, a foreign individual will only be permitted to own such residential housing units for a period of up to 50
years; the actual duration is set out in the sale and purchase contract and may be extended in accordance with government regulations. If the foreign individual marries a Vietnamese national or a Vietnamese residing overseas, he/she will be entitled to own housing on a stable and long-term basis. A foreign organization may own housing for a period not exceeding the term provided in its IRC.

Source: JLL Vietnam

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