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Inadequacies in Land Compensation and Clearance Policies Constrain Economic Growth in Vietnam

November 28, 2011

Economic restructuring from agriculture into industry and services in recent years has led to dramatic changes in conversion of land use in Vietnam. Real estate became one of the hottest growth market and the most difficult to manage, alongside the limitations in the existing land compensation and clearance policies.

Land laws and policies have evolved over time, serving as pragmatic solutions to merge socialist ideology on land ownership with the demands and pressures of an emerging modern market economy; and to redefine and refine the relationship between land users, investors, and the State.

Despite this fact, the Ministry of Natural Resources and Environment (MONRE) recorded more than 30,000 petitions of land disputes, complaints, and denouncements sent to them between 2003 and 2006. As of early 2010, many local administrative estimated that the number of complaints on land price for compensation and resettlement are accounted for 90% of citizen's complaints.

From this pressing demand from citizens and investors, the World Bank in Vietnam has studied and recently announced a publication named "Compulsory land acquisition and voluntary land conversion in Vietnam: The conceptual approach, land valuation and grievance redress mechanisms”. This report aims to assist MONRE, General Department of Land Administration in the process of developing the new Land Law to be submitted to the National Assembly for consideration and adoption in 2013.

The publication comprises of three reports, namely “Policy note on improving land acquisition and voluntary land conversion in Vietnam”, “Study on land valuation mechanisms for compensation, support and resettlement in Vietnam”, and “Study on improving the system for resolving complaints on compensation, support and resettlement in Vietnam”.

According to the survey conducted by the research team, land price for compensation calculation was the most pressing issues in provinces. More than 80% of the respondents were not satisfied with the land price applied to calculate the compensation.

Due to the lack of specific guidance on the process of determining the applicable land prices, each province or city offer different solutions. In the vast majority of cases, they have imposed an administrative decision, which are not in line with the market prices.

Major shortcomings in the compensation rate have led to the delay of projects, pushing the infrastructure investment rate too high, and slowing down the profitability of the projects. Lawsuits cause prolonged social instability and reduce the attractiveness of investment environment in Vietnam.

From the analysis of the current legal system, case studies on economic and social efficiency of compensation at market prices and international experience, experts at the World Bank and independent researchers have made recommendations to overcome the limitations of the land legislation.

Recommendations include:

1. Establishing a land valuation system, including:
- Land valuation method and procedures,
- Legal framework for land valuation services provision,
- Mechanism for settling disputes about land prices.

2. Developing criteria for compulsory land acquisition and voluntary land conversion to be applied to increase market-based mechanisms in land conversion process.

3. Building legal system on order and procedures for land allocation, land lease, land acquisition, land valuation and compensation, support and resettlement.

4. Improving the current legal system on settlement of land complaints.