Under current law, development rights for a commercial housing project may be awarded to a company through one of the following methods: (i) land auction, (ii) tender for project or (iii) developer approval.
With respect to methods (i) and (ii), the State will award the land to the developer who has won the tender and paid the State a land use fee (“LUF”) , equal to the bid price. Both of these methods are similar to acquiring land from the state without the need to obtain a Land Development Permit (“LCP”) from a competent authority to change the land use. .
While method (iii) allows a company to acquire land from existing occupants and obtain Investment Policy Approval (“IPA”) and Investor Approval (“IA”) (collectively, “IPA/IA”) of the competent authority to develop the project1. Subsequently, the promoter will have to obtain the LCP and pay the LUF to the State.
For the past nearly 20 years, method (iii) has been the most common way to obtain development rights for a commercial housing project. However, the conditions relating to this method (iii) have been amended several times and are expected to be further amended in the future. In this article, we discuss recent changes regarding this method (iii).
The Residential Housing Act 2014 (“LRH”) requires residential land for the entire project land
Prior to the effective date of the HRA (i.e. 1st July 2015), the selection of the developer for a commercial housing project was done in accordance with the old HRA 2005 and its regulations. application, according to which a company can be selected as a developer if that company held the land use rights (“DUT”) for “all types of land” as long as the use of this land for residential development complies in approved zoning2 .
This rule has been reinforced under the LRH. Article 23.1 of the LRH establishes a new condition for the selection of the promoter by stipulating that the company must have acquired “residential land” for the project. This wording was interpreted strictly by the relevant authorities to mean that the company was required to have residential land for the entire project land. Therefore, only small sites (mostly suitable for a boutique apartment project) were eligible for the IPA/IA grant, while hundreds of other larger sites were unable to obtain IPA/IA due to the lack of residential land for the entire project land. .
Investment Act 2020 (“ACT”) relaxes requirement but causes chicken and egg situation
Section 75.1(c) of the ACT (which amends Section 23.1 of the LRH, effective from 1 January 2021) allowed a company to have the LUR for “residential land and other type of land” at select as a developer, provided that part of the non-residential land is authorized by a competent state agency to be converted into residential land.
This amendment allows companies that have acquired less than 100% residential land (i.e. residential land and other types of land) to be issued the IPA/IA as long as the part of the land not residential was issued with the LCP to be converted into residential land. However, in accordance with the Land Act 2013, which is to be published with the LCP, the developer must first obtain investment approval (which appears to stand for IPA/IA) from the relevant authority as per the Letter of Intent . Therefore, it became a chicken and egg situation and therefore, although the law seems to include the case of “residential land and other types of land”, companies that might fall into this case could not obtain the IPA/IA due to the difficulty in obtaining the LCP.
Law 03/2022 (“Law 03”) resolves the chicken and egg situation, but excludes 100% of non-residential land
In early 2022, the National Assembly passed Law 03 amending nine different laws (including the LRH and the LOI), effective March 1, 2022. Under Law 03, Article 23.1 of the LRH is further amended to relax the PCL requirement. In particular, the promoter can be granted the IPA/IA if the portion of non-residential land “meets the eligibility criteria for the change of land use for the project”.
The wording of this amendment indicates that the condition of having the LCP is no longer required. Instead, the non-residential land simply needs to meet the requirements for obtaining the LCP in order to be issued with the IPA/IA. This appears to be an effort by lawmakers to clarify the chicken-and-egg situation. The amendment also clarifies that following the issuance of the IPA/IA, the proponent must obtain the LCP and pay the LUF to the State for land use conversion.
Notably, Law 03 does not include the case where a company has acquired only “another type of land” (ie non-residential land). The initial project proposed by the Government includes three cases of selection of the promoter in accordance with article 23.1 of the LRH 2014: (a) residential land, (b) residential land and other types of land, and (c) other types of land . The National Assembly finally refused to include case (c) in Law 03/2022. It has been reported that legislators were concerned that in case (c), developers would pay less LUF to the state compared to the LUF payable under methods (i) or (ii) (land auction or tender) and therefore there have been views that case (c) should be conducted through land auctions or tenders for the project.
Media reported that about 200 projects in Ha Noi and Ho Chi Minh City, which fall under case (c), will have to wait for the new rule.
Although the two amendments under the Letter of Intent and Law 03 attempt to relax the conditions for commercial housing developer selection by providing an additional case for granting IPA/IP to businesses that have acquired “residential land and other types of land”, they do not include the case of “other types of land” as the conditions applicable under the old HRA 2005 and its implementing regulations. It is unclear whether the National Assembly will further amend the HRA to allow companies that own 100% non-residential land (i.e. other types of land) to be licensed as developers under method (iii) in the future or if they have to go through methods (i) and (ii), how their land costs will be treated.