HO CHI MINH CITY PROHIBITS PROJECTS OF LAND SUBDIVISION FOR SALE: A "DOUBLE-EDGED SWORD"

The prohibition on land subdivision and sale for project developers across the entire city, including all five suburban districts, aims to contribute to enhancing the quality of Ho Chi Minh City’s urban development in the long term. In the long term, if an appropriate implementation roadmap is not established, this regulation may lead to certain disruptions in the city’s real estate market, most notably in the form of rising land prices in these districts and project delays.

Investors no longer allowed to subdivide and sale land plots

The Ho Chi Minh City People’s Committee has issued Decision No.83/2024/QD-DT which stipulated that real estate and housing project investors across the city are not permitted to transfer the right to land plots with technical infrastructure within these project to individuals or organization for self-construction, except for certain projects with resettlement purposes in towns and suburban districts

Accordingly, from October 21 when the decision takes effect, investors throughout the city, including the suburban districts of Binh Chanh, Nha Be, Hoc Mon, Cu Chi and Can Gio will be prohibited from subdividing and selling land plots for individual self construction. They will instead complete all elements of real estate and housing projects and hand them over to buy in compliance with legal regulations.

As a result, organizations, individuals wishing to transfer or acquire the right to use land plots with technical infrastructure within real estate and housing projects in Ho Chi Minh City will no longer have the opportunity to purchase such plots.

Prior to this prohibition, the Ho Chi Minh City Department of Construction had submitted a draft report to the People’s Committee explaining the rationale behind this decision.

The Department of Construction stated that Ho Chi Minh City is developing a proposal for the investment and development of its rural districts into urban districts or cities under Ho Chi Minh City for the 2021-2030 period. By 2030, these districts will focus on infrastructure development aimed at meeting urban criteria for their transformation into cities directly under Ho Chi Minh City

According to the Department of Construction, a city wide prohibition on land subdivision and sale is essential for standardizing state management in housing and for increasing investor accountability. It aims to ensure comprehensive investment in technical and social infrastructure, preventing unauthorized, non-compliant, or architecturally inconsistent self built housing

The regulation prohibiting land subdivision projects in Ho Chi Minh City has been positively evaluated by experts on multiple fronts. After a period of easy land subdivision and sale this segment revealed numerous issues. Subdividing land plots has not maximized land use efficiency and has diminished land value. Furthermore, rapid development has led to ghost projects land speculation, and other adverse effects on urban growth

“The spirit of Decision 83/2024 is a comprehensive prohibition on selling project land plots throughout the city, except in certain cases. This necessary step will have a significant impact on Ho Chi Minh City’s real estate market”, said Lawyer Le Cao, managing lawyer of FDVN Law Firm.

According to Lawyer Le Cao further emphasized this decision will enhance urban development quality and curbing land speculation, preventing investors from investing minimum capital to subdivide and resell land plots without creating real value, which wastes land resources.

“This new regulation acts as a filter, eliminating investors who engage in speculative, land - splitting practices without contributing to the country’s economy. Consequently, housing project investors will be required to comply with regulations to invest in complete projects” Mr. Le Cao highlighted.

In the long term, this expert believes that as real estate products with actual use value are created and speculation declines the market will return to its true value.

Alongside direct impacts on real estate projects, this decision may also shift investment trends. It will reshape the “play field” in Ho Chi Minh City’s real estate market, directing investors' focus towards projects with integrated complete growing demand for housing in urban areas.

“In the long run, restricting land plot sales will usher in a new era of residential products, particularly apartment buildings, that align more closely with people’s real-life needs. Things rooted in authenticity are sustainable, so the era of land plot speculation may soon be a thing of the past,” Mr. Le Cao stated.

It is not by coincidence that the government has gradually tightened regulations on land subdivision investments in urban areas over the past decade. Experience shows that land plot market booms are not always aligned with sustainable growth; several companies have rapidly grown rich by subdividing and selling land, often converting agricultural land into residential plots sold at significantly higher price for profit. Meanwhile many subdivided plots remain abandoned, overgrown, idle within urban areas.

Economists state that Ho Chi Minh City, as a rapidly urbanizing special city, requires stringent urban planning management to ensure sustainable long term. Unchecked subdivision could result in vacant plots, benefiting investors but failing to contribute to urban formation, potentially creating abandoned areas.

As part of the plan to convert suburban districts into urban districts or independent cities to encourage population migration from inner to outer areas, Ho Chi Minh City must plan and develop large integrated urban areas.

In suburban districts where urbanization is accelerating, current and future infrastructure is also geared towards unbar development. Prohibiting land plot sales helps the city preserve large enough land reserves to attract financially capable companies to invest in complete housing projects. If land plot sales continue unchecked, it will be difficult for the city to maintain substantial land reserves to create large-scale, systematic urban areas that can attract residents. The restriction on subdividing projects also aims to curb speculative practice of withholding land and waiting for price increases rather than building housing which wastes land resources, especially since land available for urban development in Ho Chi Minh City is becoming scarce    

Of course, these perspectives assume a positive outlook, contingent on effective and rigorous enforcement of real estate laws. Otherwise, controlling speculation and waste will remain challenging. In reality, some urban areas handed over completed houses to buyers only to see them left vacant, detracting from the urban landscape and presenting future risks.

In the short term, the city-wide ban on investors subdividing and selling land plots may be a “double-edged sword,” initially causing disruptions in Ho Chi Minh City’s real estate market, particularly in suburban districts.

There should be no blanket ban regardless of regional differences in conditions.

According to Lawyer Le Cao, gradually tightening and eventually prohibiting land plot sales in real estate projects in Ho Chi Minh City is essential and inevitable. However, an outright ban won’t immediately stabilize the real estate market. This is a long-term strategic solution aimed at building a legal framework and sustainably controlling the market.

“One cannot expect the land subdivision ban to be a “ magic fix” for the land market in the short term. This solution should be implemented gradually and produce results over time,” Mr. Le Cao stated.

In the near term, Mr. Cao warned that this regulation could cause certain disruptions. The swift and strict city-wide land subdivision restrictions could lead to a shortage of land plots, which may cause price hikes for small plots, residential land, and secondary subdivided projects.

Given the ongoing increase in land prices due to the new land price adjustment table, these factors could further drive prices up, making it harder for people to move to suburban areas.

Lawyer Cao emphasized that for these regulations to be effectively applied and generate positive impacts, they should be implemented gradually, with careful analysis of specific conditions, to avoid imposing a broad ban that disregards the unique characteristics of each area.

Mr. Le Cao also argued that: “Real estate market control is necessary, but we must clarify what needs control, identify the underlying issues and decide which solutions to implement. The prohibition of land plot subdivision can yield positive results in the long run, but other measures should also be prioritized, such as balancing market supply and demand, addressing the issue of abandoned projects, establishing reasonable land pricing standards, and supporting businesses to stimulate the development of attractive real estate products for investors.” 

According to this expert, restoring the market to its intrinsic value is beneficial; however, providing maximum support to enable the market to develop along new pathways is the optimal solution. Prohibiting a product from entering the market may serve as a framework solution to prompt positive shifts in the market and the pursuit of more appealing new products. Nevertheless, if such a measure does not align with the market's operations, it may stifle the market, hindering its development and support.

Besides, for Decision 83/2024 issued by the Ho Chi Minh City People’s Committee to be effectively enforced and to prevent “loopholes,” as well as to protect the legitimate rights of citizens, several key points must be observed.

For real estate enterprises, it is necessary to redefine business objectives and plans, as well as establish suitable products in the new conditions. With a relatively clear and comprehensive decision applicable across the entire city, real estate enterprises will find it difficult to circumvent the regulations. The issue lies in the fact that the new regulation will apply to future projects, while ongoing projects require local authorities to monitor situations where project developers engage in practices such as hoarding and speculation, waiting for opportunities to exploit profits. Ensuring transparency in project information will facilitate the healthy operation of the market.

For the public, the biggest concern remains the disruptions caused by short- term trends, with the belief that land plots may become scarce in the future potentially driving land prices higher in the coming period. Therefore, it is crucial to regularly update and provide transparency in information from regulation to project activities and product details to help people avoid falling into the market’s bait.

The Vietnam Association of Brokers also asserts that, for this regulation to be truly effective, it is essential to disseminate it comprehensively and in detail to all relevant parties, including investors, businesses, and the general public. These stakeholders must be specifically guided on the new procedures, processes, and the changes they are required to comply with, to prevent misunderstandings or lack of information.

Furthermore, for law enforcement officers at local levels, thorough training and a comprehensive understanding of the new regulations are imperative. Only by fully grasping the practical implementation can they effectively support projects transitioning from the old regulations to the new ones. In particular, detailed guidance is needed for transitional or incomplete cases to avoid confusion and ensure that businesses are not left in a state of uncertainty.

Without such meticulous preparations, new legal complications may arise, leading to delays and increasing the burden on local authorities as well as the market. Harmonizing information and procedures not only protects the rights of investors and the public but also ensures that the new regulations genuinely contribute to the sustainable improvement of the real estate market.

Economic expert Dr. Huynh Thanh Dien also emphasized the need for strict, goal-oriented, and clearly defined regulations. In cases where the subdivision and sale of land plots are prohibited, residential projects must have technical infrastructure integrated in alignment with the master plan, while also preventing enterprises and individuals from engaging in illegal subdivision and land plot sales for speculative purposes.