|
ACCESS TO LAND:
issues faced by Private Sector
Each year, a significant number of private enterprises are being
established in a wide range of sectors and business activities
throughout the country. As a result of this rapid growth, there has
been a significant increase in demand by private firms for suitable
industrial and commercial land upon which to locate their factories,
warehouses, offices and retail outlets. Finding land at an
affordable price is difficult for private Vietnamese firms of all
sizes. This bulletin discusses a number of constraints, in terms of
both policy and implementation, faced by private firms in locating,
acquiring and using land for commercial activities.
Limited
supply of land
In many surveys with
private firms, the lack of supply of commercial land and the
resulting high prices, as well as security of land tenure, are
viewed as major constraints to business growth. Many firms express
their wish to acquire land rights directly from the state (through
provincial authorities) in order ensure that their piece of land is
included under the provincial land use plan and they are secure to
invest in factory, warehouse and other commercial facilities.
However, the amount of land made available by public authorities
(through direct allocation or leasing by People's Committees) is
primarily accessible only by larger firms that need large plots of
land (many of which are foreign-invested) and not to smaller firms.
A recent IFC-FIAS survey 1 suggests that fewer than one
in four SMEs are able to acquire land rights directly from
government sources, and that among firms experiencing recent growth,
almost 75% viewed the lack of available land as a major or severe
impediment to growth of their businesses.
Lack of
information on land markets
The Real Estate
Transparency Index 2006 (developed by Jones Lang LaSalle) ranks
Vietnam, along with Venezuela and Egypt, as having the least
transparent real estate markets. The index suggests that Vietnam
continues to have substantial issues relating to property rights
issues and poor information flow within the market. Over half the
respondents from the 2006 Provincial Competitiveness Index survey
said that they rely on their staff resources and personal contacts
to identify suitable production facilities - essentially providing
in-house brokerage services. The recent IFC-FIAS survey of SMEs
revealed that over 50% of the firms believe that simply locating
available land is the most difficult aspect of the current secondary
market, and that 66% of the SMEs who located land did so through
word of mouth or personal contacts. These findings suggest that some
attention to market information infrastructure may have positive
impacts on the information asymmetry. These include: establishing a
legal and regulatory environment supportive of private
land-brokerage activities; improving facilitation of identifying and
tracking each piece of land and the land rights attached to it;
increasing local government efforts to create better land
inventories and make information more widely available to the
public; and improving physical planning regimes, which permit
sellers and buyers to accurately determine the current and likely
long term permitted uses of the land.
Low
security and marketability of land use rights
Access to land without
secure land tenure is of little use to investors. One threat to land
rights facing investors - particularly small investors outside of
industrial zones - is often unpredictability of changes in land-use
planning, which can result in a sudden loss of land rights. Private
firms that are unable to afford land rights in industrial zones or
to acquire long-term use rights to a sufficient amount of land often
resort to leasing land from private sector land holders or
unauthorized leasing from state-owned enterprises (SOEs). Leasing
from private sector land holders, however, is viewed as insecure due
to the weak protection of the rights of both the primary land
holders and the lessees. Those lease agreements are typically
short-term, discouraging investment in improvements. No legal
framework facilitating the sub-lease of state owned enterprise (SOE)
land also puts the rights of private firms at risk.
In addition, there are
disadvantages to leasing state land for private domestic firms as
state land can only be leased on an annual payment basis. With this
type of lease, firms have no rights on the land (apart from using it
for the specific commercial activity), and they can neither sell
their right nor offer it as collateral. Instead they only have the
right to mortgage the property constructed on the land. This creates
some ambiguity regarding the rights of land holders and creditors
since having security on buildings without having security over the
accompanying land-use right is less valuable for creditors.
Complicated administrative procedures
A GTZ survey affirms that
finding and acquiring state-owned land for production is the most
complicated, time consuming and expensive step in establishing a
business.2 The survey found that it can take
approximately 230 days to finish all of these land-related
administrative procedures with the process involving a variety of
state bodies. The IFC-FIAS survey of SMEs suggests that acquiring
actual possession of land in the private secondary market, where
most SMEs carry out transactions, can be completed in far less time
- often in less than 7 days - but that registering the transaction
and obtaining the land-use right certificate) (LURC) can be a
significant problem and take far longer. Recently, the establishment
of land registries in main cities and in each provincial center has
helped reduce some of bureaucratic procedures but has not had a
great impact on improving the speed with which LURCs or leases are
granted. Among firms surveyed in the IFC-FIAS study, there is still
a relatively high level of dissatisfaction with the LURC process,
with most firms citing the duration of the process as the major
issue. Only about 50% claim to have completed the process in less
than one month, which is essentially the time limit provided in the
regulations.
(1) This survey is jointly conducted
by the Mekong Private Sector Development Facility (MPDF) and Foreign
Investment Advisory Service (FIAS) of the International Finance
Corporation (IFC).
(2) From Business Ideas to Reality: Still a Long and Costly Journey,
GTZ/CIEM, Hanoi, 2005. The seven steps are: 1) Communicate with the
local authorities with regards to the land; 2) Apply for preliminary
approval to the competent authority; 3) Formulate an investment
project and plan for making compensation; 4) Approve the investment
project and plan for making compensation; 5) Make land clearance; 6)
Hand-over land and conclude the land-leasing contract or issue the
decision on granting of land use; 7) Issue the certificate of the
land-use rights. |
