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Cablegate: Hcmc: Will Land Law Curb Speculation?

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A

REF: Hanoi 885

1. (SBU) SUMMARY: Vietnam's new land law is intended to stem
rampant land speculation, which has been exacerbated by corruption
and a lack of other investment alternatives. Domestic and foreign
investors hope the new law and related decrees will make the
market more transparent and stable, and make more land available.
HCMC officials hope to raise funds for infrastructure investment
by reclaiming and auctioning unused land. However, the new system
still is based on the idea that government, not the market,
controls land allocation. END SUMMARY.

2. (SBU) The Vietnamese government officially owns all land. Land
use rights, in the forms of long-term leases or certificates, are
allocated by the state as a legal alternative to a land title
(reftel.) In HCMC and surrounding areas, artificially controlled
land allocation, corruption, and lack of viable investment
opportunities have fueled rampant speculation. According to
Investconsult Group, a local land and investment consultant,
government corruption sparked the speculative boom because real
estate is an effective and low profile means of laundering illicit
funds. This practice is facilitated by the GVN's restrictive
administrative mechanisms for allocating land. Land cannot be
bought and purchased on the open market. Instead, provincial
authorities zone land for particular categories of use (e.g.
residential, industrial, or agricultural) and administrativel
allcate parcels to developers for specific projects. As a
result, the state controls the supply of land available for
development. A private land use rights holder, for example a
farmer, can transfer his fields to another farmer but cannot sell
his land to a housing developer.

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3. (SBU) As both economic growth and official corruption
accelerated, the opacity and profitability of the real estate
market became attractive for government officials and agencies
looking to park illicit funds. Officials legitimized these funds
by purchasing land, often through a third party, and through
projects associated with the land allocations, such as apartment
complexes, factories, or industrial centers. Instead of
developing these putative projects, the land-use rights were often
held or re-sold with the proceeds emerging clean.

4. (SBU) The lack of alternative investment mechanisms in Vietnam
is a contributing factor to land speculation, according to Green
City, an American-owned real estate developer. Financial services
are still limited, and Vietnamese are reluctant to place money
into banks, preferring to invest in more tangible assets.
Investors commonly put capital into land. The end result is an
increasing number of investor/speculators have purchased land
allocated administratively for specific projects with no intention
of development. With the GVN controlling land allocation, land
was perceived to be in short supply, further driving up prices.

5. (SBU) The combination of artificially-controlled administrative
supply, corruption, lack of alternative investment mechanisms, and
high turnover fueled rapid price increases and a highly
speculative market. According to ACB Real Estate (ACBR), the HCMC
People's Committee issued two decisions in 2002 to restrict
certain land transfers and reserved the right to seize land that
was not being developed. This had the effect of freezing the real
estate market in HCMC. At the same time, the GVN was addressing
the land issue at the national level, passing a comprehensive new
Land Law in 2003 that went into effect on July 1, 2004. Five
implementing decrees for the new law have been promulgated to
date, with seven more to be issued by July 2005. The law and
related decrees attempt to curb speculation by removing unlimited
periods of "pending planning" by land use right-holders,
delineating situations in which the GVN can reclaim land, and by
issuing nationwide land use right certificates. (Hanoi Reftel
reports comprehensively on the new law.)

6. (SBU) According to the HCMC Department of Natural Resources and
Environment (DoNRE), the land law requires all cities and
provinces to establish land resource centers, which will provide
potential investors with information on available land by category
of use. Part of the appeal of the law for HCMC is the expectation
that DoNRE will be able to reclaim land that has not been
developed according to the original allocation and will be able to
re-sell the land use rights at auction. Funds generated are
expected to be used for infrastructure development. HCMC DoNRE is
currently evaluating all land allocated for development and
reclaiming "non-performing" land for the land use center. Tuoi
Tre, a leading Vietnamese newspaper, cited anywhere from 20 to 30
percent of land in HCMC is thought to be non-performing, and 400
projects are being investigated for delayed implementation. Even
when DoNRE initiates auctions investors/developers will still need
a reason to be authorized purchase of land, continuing the
allocation system but with a more market-based pricing mechanism.
Participation in the DoNRE auctions will be limited to Vietnamese
nationals (including overseas Vietnamese). DoNRE claims this
restriction is necessary because available land is insufficient to
meet demand.

7. (SBU) Local developers believe that the new land law will
result in investors shifting from undeveloped land toward
apartments and residences. Law firm Johnson, Stokes and Master
notes that as soon as new residential projects are announced,
developers receive inquiries and down payments on units before
prices have been set or ground broken. Even government officials
are snapping up apartments and re-selling or leasing long-term for
profit. According to Tuoi Tre, a top priority for HCMC from 2003
through 2005 is the construction of 30,000 additional apartment

8. (SBU) COMMENT: A new land law was needed and has been welcomed
by local developers. However, the success of the new law in
curbing speculation remains questionable. The law does not
address the root causes of the speculative boom: administrative as
opposed to market-based allocation of land; lack of investment
alternatives and the need to launder illicit gains. The market
has slowed considerably due to future uncertainties over ownership
and government authority to reallocate "non-performing" land. END


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