1. Introduction
Land is a fundamental resource in Vietnam, yet the constitutional principle of “land ownership by the entire people” (Article 53, 2013 Constitution) prohibits private land ownership. Instead, enterprises—including foreign-invested enterprises (FIEs)—are granted land use rights (LURs). A critical issue lies in whether FIEs can mortgage these LURs to secure financing, a question that significantly impacts access to credit and Vietnam’s investment attractiveness. The Land Law 2024, adopted in January 2024 and effective from January 1, 2025, introduces reforms intended to improve land governance, but restrictions on FIEs’ mortgage rights remain an area of contention.
2. Legal Framework under the Land Law 2024
The Land Law 2024 continues to differentiate between domestic enterprises and FIEs regarding land-use rights:
- Domestic enterprises (Article 33, Land Law 2024): may mortgage LURs and assets attached to land at credit institutions operating in Vietnam, including joint-venture banks and branches of foreign banks licensed domestically.
- Foreign-invested enterprises (Section 4, Land Law 2024):
- Retain the right to mortgage LURs and land-attached assets only at credit institutions legally established and operating in Vietnam; Prohibited from mortgaging LURs to overseas lenders directly.
- Must comply with investment project approvals and land allocation/lease conditions (Article 122).
- The law adds clearer rules on registration of land-related security interests with the Land Registration Office (Articles 197–200), aiming to improve transparency.
Thus, while the 2024 reform enhances administrative clarity, the substantive restriction remains unchanged: FIEs cannot freely mortgage LURs to foreign creditors outside Vietnam.
3. Practical Implications
Such restrictions significantly hinder FIEs’ access to credit:
- Mortgages over LURs at foreign banks or overseas creditors remain impermissible, reducing financing flexibility.
- The rule complicates project financing for infrastructure, energy, and real estate, where LURs are critical collateral.
- It creates inconsistency with investment liberalization under trade agreements: Vietnam’s WTO accession commitments and newer FTAs (e.g., CPTPP, EVFTA, RCEP) grant foreign investors national treatment in many sectors, yet land-related rights remain an exception.
4. Conclusion
The Land Law 2024 modernizes Vietnam’s land governance but continues to impose strict restrictions on foreign-invested enterprises’ mortgage rights. While these rules reflect sovereignty concerns, they also constrain capital mobilization for large-scale projects. Targeted reforms—broadening permissible mortgagees, harmonizing laws, and piloting liberalization—could both safeguard national interests and enhance Vietnam’s investment climate.
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