Real estate related matters in Vietnam

Overview on land use rights in Vietnam

Land and property related rights for foreign investors in Vietnam are tight regulated, as land is considered collectively owned by the people. The State manages land on their behalf and restricts foreign ownership.

FDI companies have limited rights to use land and own assets attached to it. There is no full "ownership" of land, instead FDI companies obtain "land use rights", while they can own assets built on the land. No entity can fully own land, only usage rights.

For investment projects in industrial parks or economic zones (IP/EZ), FDI companies can either lease ready "brownfield" factories from property owners, or lease land to build new "greenfield" factories themselves. Brownfield factories save time and money as operations can start upon receiving necessary licenses. However, existing factories follow the owner's standards and tend to be small/medium sized. Leases usually run 3-5 years or up to 10 years. With greenfield factories, FDI companies can design and build to suit their needs, leasing longer land-use rights via annual or one-off payment. However, constructing new factories requires more upfront time and investment. 

Other sectors such as trading and services can register offices elsewhere, by leasing. However, leasing residential apartments for offices is prohibited. Office lease terms are flexible as per agreement by the parties.

With respect to thin capitalization requirements, real estate companies undertaking development projects must maintain minimum equity equivalent to 20% of total investment capital for projects involving land use under 20 hectares. For larger projects involving land use of 20 hectares or greater, the statutory minimum equity is 15% of aggregate capital. Prior to investment, the real estate company must demonstrate its capability to mobilize adequate capital to fully implement the proposed project. In the event a real estate company seeks to concurrently develop multiple projects, it shall apportion sufficient equity to satisfy the minimum ratios for each individual project, thus ensuring the full execution of all projects as planned.

In summary, foreign investors in Vietnam can obtain land use rights and build assets. Leasing a premise with existing factories/building is faster, while building new ones allows customization despite greater upfront costs.

Common approaches to obtain the land use rights in Vietnam

Unlike Vietnamese companies, foreign invested companies, commonly obtain land use rights through the following key methods:

• Obtaining land use right in the industrial park, hi-tech park via leasing land or transferring the land use rights from others;
• Acquiring shares in a company that holds land use rights;
• Transferring (partially or entirely) the project together with the attached land-use rights from project owners;

As the land related procedures in Vietnam is cumbersome and complex due to the unclear and procedures with involvement of many competent authorities with different levels. Land due diligence on its legal status is conducted to minimize the potential risks. The plan and structure for obtaining land use rights should be carefully evaluated based on the specific land status and local regulations in each province. The evaluation should analyze the financial, tax, legal, and commercial implications of the intended deal structure.

With our substantial experience advising various clients in this sector, including on acquisitions, property development, drafting and negotiating construction contracts, leases, service contracts and development agreements, as well as operations matters, we have a deep understanding of trusted landlords in many locations surrounding Hanoi and Ho Chi Minh City which may give you a proper contact point for your business expanding in Vietnam. For complex and international real estate transactions, we work efficiently in interdisciplinary and cross-border teams. We also advise on dispute resolution.