Story of land price in Vietnam

VietNamNet Bridge – Former Deputy Minister of Natural Resources and Environment, Dang Hung Vo, wrote about land price, a big issue in Vietnam.

The Land Law in Vietnam

Land price in the past

Vietnamese say “an inch of soil is an inch of gold” or “land is invaluable”, meaning that it is unable to buy land.

These sayings are correct, but it is important that they are spoken out in which circumstance. If we talk about economic values of land, land has its price, which is equivalent to gold. If we talk about the nation’s efforts to defend the country’s territory, land is invaluable. This indicates the multi-faceted nature of land.

During the period of the planned economy, land was not recognized to be valuable, to have price and was not for trade. The State only permitted people to deal in assets on land. Thus, anyone who bought assets on land, naturally they had the land. In fact, a large plot of land with a tent was much more expensive than a narrow plot of land with a beautiful house (in the same natural condition and planning). It means that people paid for the land, not for the house in fact.

In the 1980s, I wanted to buy a piece of land after returning home from abroad. An acquaintance recommended me a plot of land that the owner wanted to sell cheaply because he needed money.

I went to the Hanoi Land Management Bureau to ask about procedures. I unexpectedly saw my former student who worked there. I told him about my case. He said that I could not buy that piece of land because there was no house on it to buy. He recommended me to ask the land owner to build a tent on that land and after that selling that tent to me. This is an absurdity that foreigners could not understand. For them, this is a true odd story.    

In this situation, both the seller and buyer know clearly that they are trading gold but they have to say that they trade bronze. The buyer pays the seller in the price for gold but they pay tax for bronze. Only the taxation department gets loss.

That absurdity of the old time still distresses many people today. In the period of planed economy, many state organizations sold their old offices for their employees as housing. Certificates only noted the trade of housing, not land because at that time houses are accompanied with land.

Now, the authorities decide to revoke land of the houses that state organizations sold to their employees in the past and they only compensate for the old house, not land. House owners complain but they are answered that their certificates only mention the house, not land so they are not compensated for land.

The Doi Moi (renovation) policy has been implemented for 25 years but land price is still a big problem. The official term used in legal documents is still “price for land use right”, not “price for land”. The law only recognizes the land use right.

Land price in renovation period

Vietnam’s land-related financial policy, including land price and tax, is reformed in a slower pace than renovation of legal and administrative tools in land management.

The Land Law 1987 did not recognize that land has its value and price. The State still subsidized land by allocating land to those who needed land and revoking land from those who did not need land any more.

The land-related tax system did not change at all. For agricultural land, agricultural tax that was issued in 1983, then amended in 1989, and was imposed on. For non-agricultural land, land tax that was issued in 1956, and was imposed on.

The Land Law 1993 recognized that land had its price but did not recognize the market price of land. The property market had to apply the price fixed by the State. Actually, it is a significant change in thinking when the law recognized that land has its price. The State’s management of land price shows the voluntarism in the market mechanism.

In 1992, the National Assembly Standing Committee ratified the Ordinance on Land and Housing Tax to replace the Decree on Land Tax. The ordinance was amended in 1994, under which tax on non-agricultural land was higher than that on agricultural land.

However, the wrong point in that ordinance is the tax still based on rice. Accordingly, land in big cities, where land price is highest in the country, was taxed only 2kg of rice per a square meter per year. In 2007, the state budget collected only VND711 billion of land tax (accounting for 2 percent of total revenue from land). In developed countries, tax from estate accounts for 50 percent to 70 percent of total budget of local governments and it is the major resource to develop infrastructure and public services.

In 1993, the National Assembly approved the Law on Agricultural Land Using Tax, which replaced the Ordinance on Agricultural Tax (issued in 1983 and amended in 1989). This was also a great renovation: tax in agriculture does not impose on production but on land use, which promotes more effective use of land.

The current price of land

The current Land Law, which was ratified in 2003, stipulates that the value of land must be appropriate with the value in the market. The land price fixed by the State must be suitable to the price of land in the market. The voluntarism has disappeared on State’s documents but in fact, the land price set by the State still has a remarkable gap with the market price (30-90 percent lower).

Notably, there is no legal document on the procedure to define land price to “be appropriate to the market price.” Provincial authorities have the right to fix land price and call it market price. As a result, provincial governments have the right to revoke land, to fix land price that is the ground for land compensation, to allocate and lease land. This mechanism poses a big threaten of corruption. Normally, those whose land is revoked are sad and those who are allocated land are happy.

Another matter is that there are up to three ministries involving in land price assessment. The Ministry of Natural Resources and Environment is in charge of fixing land price for building the government’s land price framework, which is the guidance for provinces to set their own land price frameworks. The Ministry of Finance is responsible for fixing prices for specific plots of land under the government’s land price framework. The Ministry of Construction is assigned to fix land price for estate firms under the Law on Estate Business. Land price, thus, is more complicated.

The legal term for land price is still “price of land use right”. When the Land Law 2003 was compiled, this term was a controversy. Most of experts said that the Land Law 1993 recognized “land price” already, if the Land Law 2003 used “price for land use right”, it was a step backward.

An initiative appeared timely: “Price for land use right (called land price) is the amount of money for a unit of land area fixed by the State or formed in transaction of land use right (Article 4, Land Law 2003). The initiative was highly appreciated by compilers.

After that the National Assembly was determined to change the tax system related to land use. It approved the exemption and reduction of tax on agricultural land in a bid to make relief for farmers. During the period of planned economy, agricultural tax was a major source of budget revenue. In 2007, revenue from this tax was only VND81 billion. This is a policy of progress.

Tax on non-agricultural land use is more complicated. After seven years of discussion at all levels, the National Assembly approved the Law on Non-agricultural Land Use Tax in June 2010. The floor tax rate is 0.03 percent, imposed on land, not house. The tax is progressive for cases that exceed the set level. Budget revenue from this tax has increased three times since then, with around VND2.1 trillion a year, accounting for 6 percent of the total revenue from land. This is not high and does not satisfy the goal of Property Tax in economic, social and environmental regulation related to investment on land.

The above analysis shows that the current Land Law needs to be renovated so that land price will be recognized by the law; to benefit the state budget, land users and prevent corruption.

Specifically, land must be defined as a special kind of goods and the conception of land price must be recognized in the legal system.

The land price system fixed by the State to calculate financial duties for everyone must be based on the average market price for land of the previous five years, which will be applied for the subsequent five years. Provincial authorities have to hire consultants to assess land price in their provinces. The government does not fix the land price frame for the entire country but set procedures on building land price frames for provinces.

For specific cases, it is necessary to establish the national and provincial estate price assessment council to define land price for these cases. These bodies must be independent from provincial authorities. These bodies are also responsible for solving land price-related complains and license estate price assessors.

Assessing land price is an expertise, so the association of land price assessors plays a very important role in land price management.

Developed, newly industrialized and developing countries that are performing industrialization policy pursue the above suggestion. In Southeast Asia, Singapore, Thailand, Malaysia, Indonesia, Philippines and Brunei use this policy.

Dang Hung Vo