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 eagerly anticipating the new laws, believing that the restriction on subdivision sales in 105 secondary and tertiary urban areas will lead to price increases in the future.
The simultaneous enforcement of 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.
Article 31, Clause 6 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. This 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 these advantages include: enhancing state control over 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 new 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 even forced to sell off their holdings due to financial distress. During this period, “big player” investor groups 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 prices.
The strategy of these investors to acquire subdivided land in anticipation of the new laws demonstrates their long-term vision. With the new laws in effect, the supply of subdivided land is restricted, giving existing products with land titles a competitive edge. The “big players” who have accumulated inventory are expected to benefit from potential price increases, coupled with the advantageous deals they secured by purchasing distressed assets. The early enforcement of these laws has left many investors optimistic and awaiting positive outcomes.
Nonetheless, when asked whether there will be a significant increase in land prices or a hot market in the southern region following the implementation of the new laws, industry insiders mostly agree that the land market is unlikely to experience a sudden surge in prices or demand in the short term.
This cautious outlook is attributed to the impact of macroeconomic factors and the global geopolitical crisis, including ongoing conflicts, economic instability, and prolonged inflation. Additionally, the 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.
Furthermore, while the new laws have been enacted and took effect on August 1st, there is still a need for implementing decrees and circulars to provide detailed guidance. As such, the market requires time to adjust to these policies. While it is understandable that investors have high hopes, the revival of the real estate market is contingent on various interconnected factors.
