VN considers allowing joint ventures to mortgage land at foreign banks for loans

The draft of the amended land law has caught the special attention from the public as soon as it was opened for public opinions. One of the most important articles is the right of businesses to mortgage the land use right and the assets built on the land at foreign banks. If this comes true, this would have big influences to the foreign direct investment (FDI) panorama in Vietnam, because the new regulation would cover thousands joint ventures operational in the country. This would also keep the foreign banks’ doors open to joint ventures and give them more opportunities to access bank loans.

The article No. 119 of the 2003 Land Law stipulates that the Vietnamese people settling overseas, and the foreign individuals and institutions can contribute capital to legal economic entities with their assets associated with the leased land, or mortgage the assets at the credit institutions licensed to operate in Vietnam.

Meanwhile, the draft of the amended 2003 Land Law proves to be more open, stipulating that joint economic institutions between Vietnamese and foreign partners not only can enjoy the above said right, but can also mortgage land and the assets at foreign banks, with the approval of the government for every specific case.

If the proposal comes true, big enterprises with long term commitments in Vietnam would get the go-ahead to mortgage land at foreign banks for loans – the matter which has been always a big obstacle for foreign invested enterprises so far.

The draft of the amended law also shows a new provision relating to the rights and duties of joint economic institutions. The provision said that the joint ventures which use the land contributed by the partners in the joint ventures would be able to continue using the land without having to pay land use fees or land leasing fee.

More and more voices have been raised to support the idea that foreign invested enterprises can mortgage the land use right and the assets built on the land at foreign banks for loans.

The land working group of the Vietnam Business Forum has repeatedly, representing the business circle, asked the government to allow foreign invested enterprises to mortgage land at foreign banks in order to pave the way for enterprises to have more opportunities for bank loans access.

Lately, the issue was once again put on the agenda of the business forum gathered on the threshold of the mid-term Consultative Group Meeting held in May 2012.

The current laws still do not allow foreign banks to accept the collaterals which are the land use right and the assets on the land. At present, the mortgage with land can be done only at the credit institutions operational in Vietnam. As such, the current regulations have been hindering investors to mobilise finance from different sources.

The HCM City Real Estate Association HOREA has also recently proposed the State Bank to allow to mortgage land at foreign banks, provided that if the land and the assets on the land are sold by bankers to take back capital, the process must go in accordance with the Vietnamese laws.

In July 2012, the State Bank organised a seminar on mortgaging land use rights and assets on the land at foreign banks, which has raised a high hope that this would come true.