Legal Bottleneck Hinders Real Estate Development

15-Jan-2020 Intellasia | VCCI News | 6:02 AM Print This Post

The legal bottleneck is one of the most important causes affecting the real estate supply in 2019.

Limited supply

Recently, the State’s enactment and implementation of the new Planning Law including the process of reviewing the records and legal procedures for real estate projects have significantly reduced the supply. The suspension of new licenses or delay of licensing have largely taken place in some localities such as HCM City, Hanoi, Da Nang and Khanh Hoa.

Nguyen Tran Nam, Chair of the Vietnam Real Estate Association, said that the trend of scarce supply has occurred since the end of 2018 and might continue until 2022.

Besides, the legal corridor regulating new business models and products such as condotel, officetel, and shophouse has been slow to issue. This has not only made the supply scarcer, but also made the trading quieter. Even the owners of a number of projects such as Bavico Nha Trang and Cocobay Da Nang have taken advantage of the lack of legal basis for resort real estate, refusing to pay committed profits to thousands of customers, resulting in disputes and litigation.

According to Le Hoang Chau, Chair of HCM City Real Estate Association, in the past two years, the real estate market in HCM City has experienced a sharp decrease in project supply and housing product supply, especially the shortage of affordable commercial housing and social housing; there have been many housing projects that have been “frozen” due to failures to carry out construction investment procedures, or stopped implementation.

Specifically, in 2018, the supply of new housing projects plummeted, down 42 percent of the number of projects, down 40 percent in the number of apartments compared to 2017; the number of future housing projects eligible for capital mobilisation decreased by 16.31 percent in the number of projects and down by 34.14 percent in the number of houses compared to 2017. In 2019, the supply of new housing projects continued to decline deeply, similar to 2018.

Le Hoang Chau said that the above situation has stemmed from causes such as: The legal system (legislative work, regulation) has been not really comprehensive and systematic; the method of formulating common laws in the style of “Framework Law; Pipe Law” has made it difficult to fight the local interests of ministries and sectors proposing the Law; the weakest has still been law enforcement, including the provisions on conditions and mechanisms of a number of bylaw documents; administrative processes and procedures generally had been cumbersome and inadequate; the responsibilities and capacity to perform public duties of a number of State officials, public servants and civil servants has been limited; harassment has not been overcome.

The shortage of housing products, leading to increased housing prices, has brought great profits to project developers, but made customers suffer because they had to buy houses at higher prices. In addition, most consumers are urban middle-income and low-income people and this made it more difficult for them to create housing, Le Hoang Chau analysed.

Forecast for 2020

Nguyen Van Dinh, general Secretary of Vietnam Real Estate Brokers Association, said that the legal barriers would continue to be obstacles to the real estate market in 2020. All localities are in the stage of reviewing land management, so the implementation of procedures to make new projects will take a long time, resulting in increased costs. In addition, the adjustment of the land price bracket in some localities may cause the price of the finished product to be inflated, forcing investors to reduce the expected profit, or even making a loss if not calculated carefully.

Experts forecast that the biggest shortage would be in the low-price housing segment. For the land market, after the case of Alibaba Company’s illegal sales of unlicensed projects, the administration of the government will be tighter, it will difficult for new projects to sell. The resort real estate market will have similar movements.

Le Hoang Chau said that the current real estate market was not bad in nature, not at risk of crisis, because it was still in a cycle of recovery and growth. The current difficult situation of the real estate market is only temporary, which is caused by problems and conflicts of some legal regulations and also by law enforcement. However, due to the lag in the real estate market, if measures are not taken to deal with current issues and bottlenecks, the decrease in the market scale will continue in the near future, making the dream of home ownership more difficult for the majority of urban middle-income and low-income people.

The HCM City Real Estate Association has proposed the National Assembly consider amending a number of laws such as Investment Law, Law on Enterprises, Construction Law, Housing Law, Law on Real Estate Business, and Law on Urban planning in 2020. The Association has proposed the prime minister aggressively request amendment of Decree 43/2014/ND-CP; Decree 44/2014/ND-CP; Decree 47/2014/ND-CP; Decree 104/2014/ND-CP; Decree 01/2017/ND-CP on guiding the implementation of the Land Law; and Decree 99/2015/ND-CP on guiding the implementation of the Housing Law; and soon to issue a “Vietnam Construction Code” to immediately solve legal problems for housing projects with mixed land fund and land under State management, in order to increase supply of housing projects, housing products, especially affordable commercial housing, social housing, including condotel hotspots.

For housing projects using public land funds subject to review due to inaccurate legal basis to propose decisions, the Association has requested competent State agencies quickly make conclusions for the projects subject to review and inspection, so that investors can comply and perform additional financial obligations to the State (if any). At the same time, the Association has proposed allowing investors to continue implementing the projects, helping to supplement the supply for the real estate market.

The experts suggested solutions to promote comprehensive and thorough review in order to actually reform administrative procedures, applying information technology, implementing e-government and e-government agencies to ensure services and accountability. From the beginning of 2020, many changes in land and construction policies have come into effect such as announcing the new land price list; sanctioning administrative violations in the field of land; and registration of mortgage of land use rights and assets attached to land.

From January 5, 2020, Decree 91/2019/ND-CP of the government, replacing Decree 102/2014/ND-CP with many new points on sanctioning of administrative violations in the field of land, officially went into effect. Of which, many land violations may be subject to a fine of up to VND1 billion, for example, delay in making red books (ownership of land) for people, violations in subdivision, land sale, land encroachment.

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Category: Business, Vietnam

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