As a result of encouraging investment policies enacted and increased participation of new investors, the Vietnamese real estate market has been up in the last 3 years. Vietnam finds itself in a favourable context to improve its infrastructure and economic competitiveness with the onset of finalised trade treaties such as European Union Vietnam Free Trade Agreement (EVFTA) and the Trans-Pacific Partnership (TPP). In addition, the real estate market also has been stimulated by important laws which have been recently passed. Nonetheless, if not enough administrative reforms and transparent procedures are put in place, it is likely that capital flow will move to neighbouring countries. We believe that there are some regulatory handicaps hindering the sustainable operation and development of the real estate market which should be considered and we wish to share our concerns with the Government in order to maximise the favourable climate Vietnam finds itself in.

The Law on Investment 2014 (LOI) requires conditions on bank deposits of investors before carrying out the project. While the purpose of the deposit obligations is to protect the legal rights and benefits of customers and prevent project investors from delaying or not implementing the projects and causing damage to customers, the deposit level still places significant financial pressure on project investors.

In addition, the calculation of the land use levy under the Law on Land 2013 (LOL) is complex, unpredictable and expensive for developers. The land use levy creates a great expense upon project performance, and the inconsistency, as analysed below, not only poses many obstacles for investors, but also causes potential for corruption.

Furthermore, the expenses on establishing electricity and water supply system still holds significant contradictions between various types of laws. As such, the housing customer is the final victim of these discrepancies because expenses on establishing electricity and water supplies are reflected in the housing price.

Lastly, although improvements have been seen in the legal system and administrative reforms made to previous legislation, several inadequacies related to regulations for real estate projects still remain. Therefore, we would like to highlight certain legal shortcomings and provide some recommendations from EuroCham members. We welcome the opportunity to cooperate with the legislators to facilitate the growth and efficiency of the real estate market.

I. DEPOSITS IN REAL ESTATE PROJECTSRelevant Authorities: State Bank Vietnam (SBV), Ministry of Planning and Investment (MPI)

Issue description

The LOI states that investors must make a deposit equal to 1-3% of the capital investment into a bank account to implement investment projects.[1] According to Article 5.2 of Decree 32/2015/ND-CP dated 25 March 2015, the capital investment includes expenses from the ground clearance and compensation stage until the completion and maintenance of project construction. This means the value of this deposit shall be locked up and therefore, many projects suffer financial problems when implementing investment projects, along with many difficulties in ground clearance. Since a significant deposit is locked can deprive investors of their right of using this cash for project implementation and cash flow.

Although the purpose of such regulations is to ensure the commitments of investors to perform their projects and protect the legal rights and benefits of customers, these regulations are not favorable for the current real estate market of Vietnam, especially when the Government is encouraging more inward foreign investment.

EuroCham members believe that it is unnecessary to impose a high level of deposit upon project investors because it represents a significant waste of capital deployment. Project investors need their current cash to maintain their operation and the Government gains no benefit from their financial difficulties. Instead the deposit can be calculated based on the total expense of ground clearance or the expense of construction according to the project’s implementation stages. This solution, on the one hand, can reduce financial pressures on project investors, on the other hand, reduces the likelihood of investors violating their project commitments.

Another point of concern is the release of the locked-up deposit under Article 27.8(a) of Decree No. 118/2015/ND-CP dated 12 November 2015. This regulation provides that 50% of the deposit shall be released when investors complete land procedures and obtain other licenses/approvals to commence construction according to the scheme in their Investment Registration Certificate or a decision on investment guidelines. Currently, the time frames for administrative procedures are still unclear.[2] However, Article 27.8(d) of this Decree only accepts the release of the deposit if the project execution cannot be continued because of a ‘force majeure’ event or errors of a competent authority. And, there is no exception for the delay of continued projects in order to refund the deposit.

Potential gains/concerns for Vietnam

The high level required for deposits will have a negative impact on the project investors’ current cash flow. The reduction of deposit levels can encourage more real estate investment projects.

For the Vietnamese people, an increase of real estate investment projects will create more revenue, jobs and more products for the buyer’s market, and therefore, contribute to the sustainability of general social security of Vietnam in the long term.


  • The deposit should be calculated based on the total expense of ground clearance or the expense of construction depending on the stage of development of the project. If the land is allocated to investors without the completion of compensation and ground clearance, the deposit level should only to be calculated according to the estimated expense of ground clearance.
  • The investor should receive a deposit refund if the project execution is delayed or cannot be continued because of a ‘force majeure’ event or due to a delay or error by a competent authority.

II. LAND USE LEVYRelevant Ministries: Ministry of Finance (MOF), Ministry of Planning and Investment (MPI)

Issue description

The LOL defines a land use levy as an amount of money that a land user shall pay the State when (i) being allocated land by the State, (ii) permitted to change the land use purpose, or (iii) having land use rights recognised by the State.[3] At the same time, under Article 4.1 of Decree No. 45/2014/ND-CP dated 15 May 2014 (Decree 45), the payable land use levy for the item (i) is calculated as follows:

Payable land use levy=Land price used for land use levy calculation (based on land use purpose)xLand use levy-liable land area–Land use levy amount reduced under Article 12 of this Decree–Compensation and ground clearance money deducted from land use levy (if any)

In accordance with Article 114.2 of the LOL, land price schedules shall be used as a basis for the calculation of land use right valuation paid to people who voluntarily give up the land to the State. In fact, the compensation and ground clearance expenses based on the land price list hardly reflect the actual expenses incurred by project investors which almost always much higher . Because of the inconsistency between regulations and reality, many project investors can not claim the actual expense of ground clearance leading to a high amount of land use levy. Besides, according to Article 4.2(c) of Decree 45, the funds for organising compensation and ground clearance must be approved by a competent state agency. The above inconsistencies of regulations on land use levy not only triggers many difficulties for projects to calculate an expense estimation, but also creates opportunities for corruption.

This issue has already been shared with the authorities. For instance, the Ho Chi Minh City People’s Committee (HCMCPC) has also proposed to the Government to change the term ‘land use levy’ into a type of tax in Report No.196/BC-UBND dated 8 November 2013: ‘For long-term benefit, we request eliminating the term land use levy and replacing it by a tax with the rate between 10-15% under the land price list. This solution will ensure transparency and a simplified calculation.

In the context of globalisation and deep economic integration, administrative procedures must be kept transparent to attract foreign investors to invest in Vietnam. Any taxes, fees or charges should be clear and easy to calculate to encourage domestic and foreign investors to perform investment projects and to limit legal loopholes which may create corruption. This is also consistent with the spirit of the Master Program on State Administrative Reform in the period of 2011-2020 promulgated by the Government.[4]

Potential gains/concerns for Vietnam

If the regulations on ‘land use levy’ and the calculation remain unchanged, it will likely cause many problems for project investors and create favourable conditions for corruption. However, with a transparent legal fee, more foreign investors might be encouraged to participate in the real estate market.

Furthermore, transparent fees and legal procedures reduce risks for investors and facilitate financial estimates for the middle and long-term development of enterprises.


  • The term ‘land use levy’ should be replaced with a type of tax with the rate between 10-15% under the land price schedule, as suggested by the HCMCPC.
  • The Government should decentralise the authorization of defining the land price ceiling for the provincial land to apply the actual local price, especially in Class-I cities.

III. ELECTRICITY AND WATER SUPPLY SYSTEMSRelevant Ministries: Ministry of Natural Resources and Environment (MONRE), Ministry of Industry and Trade (MOIT), Ministry of Planning and Investment (MPI)

Issue description

Article 17.3 of Decree No. 11/2013/ND-CP dated 14 January 2013 states that project investors must invest in the construction of technical infrastructure work and social infrastructure to ensure the synchronisation of the infrastructure of the surrounding area of a real estate project. Besides, an apartment may only be transferred to customers if its infrastructure is finished under the Law on Real Estate Business 2013 (LOREB).[5] In line with these regulations, project investors have obligations to build up the electricity and water system and its expenses are calculated into the housing price.

However, the Law on Electricity 2004 (LOE)[6], being a specialised law which should be of higher authority, provides that the Electricity distribution company shall invest in the construction of transformer stations, electricity meters and electric conductors to electricity meters for electricity sale. More specifically, the electricity distribution company are responsible to invest in meters and transmission lines to meters for electricity buyers.[7] Therefore, according to the LOE, obligations on the establishment of electricity system in real estate investment projects belong to the electricity distribution company. But in fact, for the past 10 years, project investors have had to invest in the electricity system (transformer station, cables, low-voltage and medium voltage underground cables and electricity meters) to transfer to the electricity distribution company without refunds.[8] Similarly, according to Article 55.2 of Decree 117/2007/ND-CP dated 11 July 2007, the water distribution company have the obligation to invest in the installation of pipelines to the connection points, including water meters, for water-using customers.

Legitimate rights and benefits of housing buyers have been violated because they have to incur the expense of the establishment of both electricity and water systems. For luxury housing projects, establishing electricity and water systems is negligible, but it constitutes a huge expense for low-price commercial or social housing projects. This will create more financial pressure on low and medium income earners. From the legal perspective, the project investor is an electricity and water using customer, so by no means are supply units released from any responsibility of an establishing electricity and water system. Thus, for off-the-plan projects, if project investors build up and transfer electricity or water systems to the water and electricity distribution company , the latter shall refund these expenses to the former.

On a larger scale, although the supply of electricity and water are currently under State monopoly, the water and electricity distribution companies are normal enterprises and must observe those rights and obligations under the laws. Accordingly, some regulations should be amended to distinguish the rights and obligations of project investors with respect to water and electricity supply units.

Potential gains/concerns for Vietnam       

The unreasonable allocation of expenses for establishing an electricity and water supply system affects the legal rights and benefits of housing customers negatively. In fact, these expenses comprise 2-3% of total investment. For example, a 100m2 apartment will be charged 75 million VND.[9] These expenses can deprive many medium and low-income earners of opportunities to access affordable housing.

In addition, with a significant decrease in housing prices as a result of the redistribution of expenses on water and electricity infrastructure, the low-income public will have more choices to select appropriate housing according to their budget. Finally, this will also allow low-income households living in lower-standard housing to improve their living conditions.


  • The LOREB and the guidance documents should impose obligations on electricity and water supply units to invest in supply systems. If these systems are already in place, invested by the real estate developers and transferred to supply units, the cost should be refunded.
  • For pre-existing real estate projects, at least water and electricity supply companies should refund costs of established supply systems for lower commercial and social housing projects.



EUVFTA                   European Union Vietnam Free Trade Agreement

HCMCPC                 Ho Chi Minh City People’s Committee

LOE                          Law on Electricity

LOI                            Law on Investment 2014

LOL                           Land on Land 2013

LOREB                     Law on Real Estate Business 2013

MOF                          Ministry of Finance

MOIT                         Ministry of Industry and Trade

MONRE                    Ministry of Natural Resources and Environment

MPI                           Ministry of Planning and Investment

SBV                           State Bank of Vietnam

TPP                           Trans-Pacific Partnership

VND                          Vietnamese Dong


VCI Legal

[1] Article 42 of the LOI

[2] For example: Article 34.4 of the LOI does not indicate a fixed duration for the Provincial People’s Committee to appraise the project dossier

[3] Article 3.21, the LOL

[4] Resolution 30c/NQ-CP dated 8 November, 2016 on promulgating the Master Program’ on State Administration Reform in the 2011-2020 period

[5] Article 13.3 of the LOREB. Available at <http://thuvienphapluat.vn/van-ban/Bo-may-hanh-chinh/Nghi-quyet-30c-NQ-CP-Chuong-trinh-tong-the-cai-cach-hanh-chinh-nha-nuoc-131576.aspx>

[6] The LOE as amended in 2012

[7] Articles 11.3 and 41.2.c of the LOE

[8] Real Estate Association of HCMC, Archive No.61/HoREA on the Draft Law amending and supplementing some articles of laws on investment and business, dated 29 August 2016, p.11

[9] Real Estate Association of HCMC, Archive No.61/HoREA on the solution for investing in electricity distribution system.


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