US embassy cable - 05HOCHIMINHCITY428

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000428 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PLEASE PASS USTR, ELENA BRYAN 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT 
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: EINV, EFIN, ECON, PGOV, SENV, VM 
SUBJECT: HCMC: WILL LAND LAW CURB SPECULATION? 
 
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. 
 
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 
units. 
 
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 
COMMENT. 
 
WINNICK