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Lessons Learned for Attracting FDI into Vietnam's Real Estate Sector


making India a truly difficult FDI destination to access these days.


Thanks to some progressive reforms in re-establishing the above regulations, FDI inflows into real estate have had significant changes:

In 2003, of the total FDI capital in India of 2.7 billion USD, FDI in real estate accounted for 4.5%, or 121.5 million USD. By 2004, of the total FDI of 3.75 billion USD, the real estate sector accounted for 10.6%, or 397.5 million USD.

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In March 2005, the Indian government allowed 100% FDI construction and development projects to be approved automatically, without having to wait for approval from the Foreign Investment Promotion Board (FIBP), with the minimum requirement for real estate projects being only 10 hectares for housing and 50,000 square meters for infrastructure development projects. However, foreign investors must carry out construction within the framework of the project within a specified period of time. That is, investors must complete at least 50% of the project within 5 years from the date of receiving all investment approval documents. This was implemented to avoid real estate speculation, which could lead to a crisis like the one in Thailand in 1997. This provision has opened the way for investors to penetrate deeper into the Indian real estate market.

That's right, in 2005, the amount of FDI flowing into the real estate sector reached 1.04 billion USD. By 2006, this number had doubled to approximately 2 billion USD. And it is forecasted that by 2010, this number will reach 25-28 billion USD. 13

Lessons Learned for Attracting FDI into Vietnam's Real Estate Sector

It can be seen that FDI in the real estate sector of India is developing at a very fast rate, strongly affecting the development of the entire economy, because the real estate sector is closely related to many other important sectors in a

13 ASSOCHAM report-Report of the Indian Chamber of Commerce and Industry 2004,2005.

The World Bank-World Development Report 2006 www.worldbank.org


the economy of any country.


3. Lessons learned for attracting FDI into Vietnam's real estate sector

Lessons from China


China and Vietnam have many similarities, both geographically, economically and politically. Vietnam opened its doors to FDI nearly 10 years after China, so there are many things we can learn from them.

Lesson number one on the legal environment


Establish a unified legal framework for this activity, creating a competitive environment for equal business activities between domestic and foreign investors. It is necessary to move towards building a unified legal basis for domestic enterprises and foreign-invested enterprises in accordance with international regulations. Moreover, China's foreign investment incentive policy also has many notable points such as: exemption of import tax and value added tax for imported production equipment, international investors are encouraged to establish trading companies with foreign countries in the Central, Western and coastal regions. The project approval process is shortened to the maximum from having to go through 70 seals to now only need 1 seal from the highest authority. At the same time, the Chinese government also encourages TNCs to invest in high-tech fields and upgrade techniques. At the same time, investment incentives are also used strongly, such as reducing income tax for FDI enterprises from 33% to 15% or allowing projects under 30 million USD to only need approval from the province and city, which is very effective in attracting FDI into the real estate sector.

Lesson two on implementing consistent, clear policy


China follows the path of opening up “test first, apply widely later”. Over the past twenty years, China has successively formed an opening up situation by establishing preferential tariff areas, then gradually forming special economic zones, gradually developing technical industry development zones, high-tech industry development zones, and then developing open coastal, riverside, inland and border cities. It can be seen that the Chinese government thoroughly implements the viewpoint from the central to local levels that attracting FDI is an urgent requirement for economic development. They agree on the important role of FDI in the economy, considering the economy as the focus of development. Regardless of whether the resources are domestic or foreign, as long as they are beneficial to the country, they must be encouraged to develop. Such as the application of attracting FDI to coastal economic development areas, coastal areas such as Shenzhen, Shantou, Hainan economic zones ... this is a reasonable and solid development policy, which can avoid losses caused by mistakes in policy making. Real estate is also a key sector that receives special attention. The development of economic zones is a favorable condition for attracting FDI to the real estate sector in these areas. Vietnam needs to build industrial parks, economic zones to attract the construction of infrastructure, factories to serve production and business activities here. Only then will attracting FDI to the real estate sector have increasingly great prospects.

Lesson number three must focus on building a good investment environment, especially infrastructure issues.

This is a really important issue for any investor when considering whether to invest in a country or not. With advantages such as cheap labor costs, abundant resources, but China's advantage over countries like Vietnam, Laos, Thailand ... is that it has a system


Good infrastructure. Starting to improve the infrastructure system from coastal areas, up to now, China has had modern economic zones - a positive factor contributing to attracting FDI. Infrastructure construction plays an important role in attracting FDI into the real estate sector due to the requirements for transportation, roads, electricity and water systems, internet networks ... necessary for the construction of apartment buildings, industrial parks... this is a very important condition for foreign investors to consider when investing in the real estate sector.

Lessons from India


Although India is slightly different from Vietnam in terms of political regime and legal regulations, it is a country that opens more slowly. However, within just a few years, they have attracted FDI into the real estate sector quickly and effectively. There are some lessons learned that will help to further attract FDI in general and FDI into real estate in particular.

Lesson number one is about building an institution to attract FDI in a transparent and fair manner, aiming at sustainable economic development.

India is now considered to have the best institutional system among developing countries. A typical example is the effort to build a one-stop, one-stop mechanism for foreign investors. Moreover, the Government and the State of India create maximum conditions for investors to develop their capabilities. The Government has really sat in the back seat, letting the private market take the lead in the country's economy. At the same time, the open banking and financial system is also a huge advantage in attracting foreign investors because the banking and financial system is closely related to real estate, the growth of this system also makes real estate develop more strongly. While China relies on foreign investment as the main source of capital for development investment and from there the government creates jobs through important infrastructure projects, India


India develops from strengthening its domestic infrastructure and technology, then attracting foreign investment. This perspective helps the Indian economy in general to move forward firmly and stably.

Lesson number two is about fair treatment for both domestic and foreign investors.

The Government of India allows any foreign company to set up a company in India and is allowed to operate under the same laws and regulations as any Indian company. Moreover, India also grants National Treatment (NT) to foreign investors, without any discrimination between foreign invested companies and domestic companies operating in India. This is really an incentive for foreign investors to be willing to invest in all sectors of the economy in general and in the real estate sector in particular.


CHAPTER 2

CURRENT STATUS OF ATTRACTING FOREIGN DIRECT INVESTMENT IN REAL ESTATE SECTOR IN VIETNAM


I. LEGAL BASIS FOR FOREIGN DIRECT INVESTMENT IN VIETNAM'S REAL ESTATE SECTOR

1. Land Law

The first Land Law was promulgated in 1993, this is one of the important laws reflecting the renovation policy of the Party and State right after the US implemented the normalization of relations and lifted the embargo on our country. To adapt to the rapid changes in the international integration trend of Vietnam, the 1993 Land Law was amended and supplemented on December 2, 1998, and took effect from January 1, 1999. According to the socio-economic development process along with the milestones of changing the appearance of Vietnam's political economy in the development stage of integration with the world economy such as the signing of bilateral trade agreements with world economic powers such as Japan and the US, there is a need for changes in the state's land regulations. In 2003, the new Land Law was officially issued on December 10, 2003 and took effect from July 1, 2004, consisting of 7 chapters and 146 articles. The 2003 Land Law no longer has provisions distinguishing between domestic and foreign investors in order to create an equal and fair environment.

The law stipulates that land users include Vietnamese people residing abroad who invest in Vietnam, live permanently in Vietnam, and foreign organizations and individuals who invest in Vietnam. For Vietnamese people residing abroad, the Vietnamese State allocates land, leases land, and allows them to buy houses with land use rights. As for foreign organizations and individuals investing in Vietnam, they are only allowed to lease land - this is allowed.


stipulated in Clauses 6 and 7, Article 9 of the 2003 Land Law. An important provision of the Land Law guided by Decree No. 181/2004/ND-CP issued half a year after the Land Law was promulgated is: projects must complete construction of houses before being sold, not allowing the sale of land plots has really had a strong impact on the real estate market. This has led to a state of paralysis and freezing in the real estate market for a few years. However, the greater impact is on domestic investors because they hardly have enough strength to carry out a project from start to finish. For foreign investors, the Land Law in general has contributed significantly to improving transparency, simplifying investment procedures, and creating a more favorable investment environment for them. To update the socio-economic situation in the period of Vietnam's international economic integration, last September, the Minister of Natural Resources and Environment signed a decision to establish a drafting team to amend and supplement the 2003 Land Law. This will promise new, progressive changes that are more suitable to Vietnam's economic development situation.

2. Real Estate Business Law

The Law on Real Estate Business of the National Assembly of the Socialist Republic of Vietnam, No. 63/2006/QH11, issued on June 29, 2006, effective from January 1, 2007. The Law on Real Estate Business consists of 6 chapters and 81 articles, issued for the first time in Vietnam. It has, is and will make positive contributions to the process of real estate development, actively regulating the real estate market in a transparent and public direction, while improving the effectiveness of State management in this field.

In the Law, there is no clear provision that investors in real estate are domestic investors or foreign investors. The Law only clarifies the issues and necessary conditions for organizations and individuals to participate in real estate business activities in Vietnam as well as organizations and individuals related to real estate business activities.


Real estate business in Vietnam is well understood. Only Article 10 of the law stipulates the scope of real estate business activities of foreign organizations, individuals, and Vietnamese people residing abroad as follows:

Foreign organizations, individuals, and Vietnamese people residing abroad are allowed to do real estate business and real estate service business within the following scope:

a. Investing in creating houses and construction works for sale, rent, or hire purchase

b. Investing in land improvement and investing in infrastructure works on leased land to lease land with infrastructure

c. Real estate service business as prescribed in Clause 2, Article 9 of this Law. Real estate services that foreign organizations and individuals and Vietnamese people

Men residing abroad are allowed to do business including: Real estate brokerage services, real estate valuation services, real estate trading floor services, real estate consulting services, real estate auction services, real estate advertising services, real estate management services.

The most important point and one that everyone is particularly interested in in the Law on Real Estate Business is that "organizations and individuals doing real estate business when selling, transferring, leasing, or leasing-purchasing real estate must go through a real estate trading floor" and at the same time, organizations and individuals not doing real estate business are also encouraged to conduct real estate transactions through a trading floor. This issue is regulated in Article 59.

This regulation opens up a prospect for further development of the real estate market and attracts foreign investors because through transactions conducted on the exchanges, transparency and publicity are clearer, creating a more favorable investment environment. At the same time, the rights of the parties are also more firmly guaranteed.

The Law on Real Estate Business is considered a suitable and necessary legal document in the period of strong development of the real estate market without any specific regulations up to now. After more than 10 months

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