As of August 1st, 2024, three new laws related to real estate took effect, instilling strong confidence in investors. Among them, the “big players” who previously engaged in distressed asset hunting and land hoarding for subdivision are now optimistic about the potential for price increases in the future due to the restriction on land subdivision sales in 105 secondary and tertiary urban areas.
The simultaneous enforcement of regulations under the Land Law, Housing Law, and Real Estate Business Law, effective from August 1st, 2024, is expected to bring about positive changes in the market going forward.
Clause 6, Article 31 of the 2023 Real Estate Business Law restricts the transfer of land use rights to individuals in wards, districts, and cities of special, first, second, and third-tier urban areas. The new law expands the scope of application compared to the previous law, which only applied to special and first-tier urban areas directly under the central government.
This regulation, effective from August 1st, brings certain benefits and lays the groundwork for the sustainable development of the real estate market, particularly the land subdivision segment, in the long run. Some of the advantages include: enhancing state control over land subdivision sales activities, ensuring rational and efficient land use to prevent speculation and hoarding that leads to land wastage, and guaranteeing architectural and urban planning aesthetics by requiring the construction of houses before selling the land to buyers.
However, this regulation will also contribute to increased pressure on the supply of newly subdivided land plots in the restricted areas, potentially driving up land prices in a segment that is already prone to localized overheating.
From late 2022 to the end of 2023, subdivided land plots in the outskirts of Ho Chi Minh City were continuously sold at a loss, with some investors facing financial distress even resorting to fire sales. During this period, groups of “big player” investors quietly emerged to scoop up distressed assets and hoard land. This trend continued into the first quarter of 2024 in the southern market, despite a gradual cooling of distressed asset prices.
The strategy of these investors to acquire subdivided land plots in anticipation of the new laws demonstrates their long-term vision. With the enforcement of the laws, the supply of subdivided land is restricted, favoring existing products with land titles. The “big players” who have accumulated inventory are expected to benefit from potential price increases in the market, coupled with the advantageous deals they secured by acquiring distressed assets.
While the new laws have boosted the morale of many investors, most industry insiders believe that the land subdivision market is unlikely to experience a sudden surge in prices or overheating in the short term, in terms of both supply and demand. This is attributed to the impact of macroeconomic factors and the global geopolitical crisis, including ongoing conflicts, economic instability, and prolonged inflation.
Furthermore, the overall land market continues to witness a tug-of-war between two extremes: one segment of investors who have borrowed to purchase real estate is struggling to keep up with bank interest rates, while another segment remains indifferent to real estate investments. In addition, while the new laws have come into force as of August 1st, there is still a need for implementing decrees and circulars to provide further guidance, allowing the market time to adjust to the new policies. While it is understandable that investors have high hopes, the revival of the real estate market is contingent on various interconnected factors.
