Will real estate prices increase or decrease after the 2024 Land Law?

From January 1, 2025, a series of three important amended laws on real estate, including the Law on Land, Housing, and Real Estate Business, will take effect.

Mr. Dinh Minh Tuan, Director of Batdongsan in the Southern region, said that there has never been a precedent where a new law has been passed and real estate prices have decreased. On the contrary, the new legal framework from the 2024 Land Law will increase project implementation costs. He cited 4 factors that increase housing prices, including:

One of the most important points of the Land Law 2024To beThe old land price framework has been abolished and instead, prices will be determined based on the purpose, duration of land use, input information, and other influencing factors. The new land price framework is close to the market price, causing land-related budgets such as site clearance costs, land recovery compensation, and land-related taxes and fees to increase.

"Basically, land owners will benefit more, and businesses with strong finances will find it easier to clear land according to market mechanisms. But accordingly, project development costs are also higher than before, so investors must increase product prices," said Mr. Tuan.

Second, the new regulation requires investors to collect a maximum of 5% of the deposit until they are qualified to do business. Simply put, the project must complete the construction of the floor area before it can collect more. This construction part accounts for about 20-30% of the construction cost. Previously, investors could "circumvent the law" by mobilizing this initial financial amount from buyers. But from 2025, this will no longer be allowed. If the finances are not strong, businesses must borrow from banks, issue bonds or mobilize from securities for this initial investment. Most of the mobilization channels on the investor cost more (and will still be included in the selling price).

Third, the new Law stipulates that land with multiple uses can be converted into agricultural land, allowing businesses to receive transfers of land use rights for rice cultivation, expanding the cases of land use conversion... All of these regulations will contribute to increasing the price of land from agricultural land, non-commercial land and many other types of real estate.

Finally, a large amount of unregistered land will be legalized after 2025. This is a source of "cheap" land in the market. Once the certificate is issued, this type of land will increase sharply in price and have a great impact on the general land price level.

Also concerned that the new land price list will affect real estate businesses in the short term, Mr. Nguyen Quoc Bao, Chairman of the Ho Chi Minh City Real Estate Club (HREC), shared that the most difficult thing for real estate investors when the new land price list is applied is that the compensation cost is too high, which can make it more difficult to negotiate land clearance in projects with large land funds. It will be even more difficult for businesses to implement large-scale projects. He also said that after the law is applied, real estate prices will hardly decrease, but there will also be no more "indiscriminate increases".

With a more optimistic perspective, Mr. Vo Hong Thang, Project Development Director of DKRA Group, said that if land prices follow the market, project costs will certainly increase, but the legal corridor will help businesses reduce financial expenses arising from prolonged project progress and other unnamed costs.

70% of the difficulties of real estate businesses are due to legal problems, including many problems with land valuation, compensation land price framework, etc. Normally, developing a project, from the start of legal procedures to when it is eligible for sale, will take about 1-3 years. But in reality, many projects have to take longer than expected, 5-7 years to complete the legal procedures, and if "stuck", it can be extended indefinitely. If the costs exceed the original estimate, the investor will calculate all of them into the selling price. According to Mr. Vo Hong Thang, this is the cause of supply congestion, cash flow loss, and rising housing prices over the past years. Therefore, the 2024 Land Law will remove legal barriers that are considered to cause unnecessary costs for businesses.

"Project implementation costs will increase here but decrease there," he predicted. And the increase under the 2024 Land Law is still "easier to bear" compared to the losses that real estate businesses have to bear when projects are delayed for a long time. In the long run, the new regulations will help land prices grow sustainably, instead of easily overheating like before.

According to Mr. Tran Van Binh, Vice President and General Secretary of the Vietnam Association of Realtors (VARS), in the short term, the new land price list will have some impact on businesses. But in the long term, the Land Law, Housing Law and Real Estate Business Law have resolved overlapping and inconsistent problems that have caused difficulties for investment and business activities of real estate businesses. Real investors will also have easier access to land, and project development costs will have the opportunity to be reduced thanks to the shortened legal completion process. Accordingly, product prices will have the opportunity to be adjusted to a reasonable level.

Sharing the same view, Mr. Tran Khanh Quang, General Director of Viet An Hoa Real Estate Company, said that the new law is only a part, the main factor determining the increase or decrease of real estate prices is still based on the supply and demand balance of the market. The 2024 Land Law has focused on solving many problems, removing legal bottlenecks, especially in procedures and project investment processes. The supply of real estate is more abundant and increases competitiveness for the market. Investors also have to rely on actual purchasing power to "cut their coat according to their cloth".

Most experts believe that when the market improves, real estate will experience a sustainable price increase cycle according to the law of supply and demand and will no longer easily experience land fever as before.