The topic at hand was land ownership, and here are some of the things I learned. Officially, all land in Vietnam belongs to the State and the Government grants long-terms rights to usage (which because of their length function very much as full ownership). Those rights can be transferred to other people in exchange for compensations (so there is a market…), but the Government in different stages must approve the transfer. There are 3 different “official” uses of land: agriculture, residence and industry. The rights of use of agricultural land usually are in the hands of local farmers, who live in villages close to the plots, and they are most frequently used to grow rice or other agricultural commodities.
What if an investor wants to use some agricultural land to develop an industrial project? This is how it works. The developer first needs to deal with the government, and get a temporary permit that states that the government has authorized to change the type of usage of the land (from agricultural to industrial) and authorized they to advance an agreement with the current owners of the land rights. Then a negotiation process takes place: the developer would approach the farmers, and offer them to take their land in exchange for a given compensation. Sometimes, the compensation would reflect “market prices”, that is, the value that the land would have in the current state given all the available information on possible future developments that would affect the price.
Often enough, though, the developers would trick the farmers into giving them their land, frequently telling them untrue stories… “You know, now the government has declared this land to be for industrial use, so you won’t be able to use it to grow rice anymore. It is of no use to you, so you may as well sell it to me”. The compensation given to the farmers would frequently be as low as it can get: around 2 dollars per square meter. Once there is an agreement with the farmer, the developer needs to go back to the government officials to get a definitive authorization, and then they would have to make an additional payment: since the land is changing classification, it works like they where granting usage rights for the first time, and the government gets to collect the respective fee.
Collusion between investors and bureaucrats seems to be… not uncommon. Frequently, just after the land has been transferred from farmers to developers, there would be “news” about the government building a big road or bridge connecting the recently transferred land to the city or the ports. Thus, the value of the land would increase dramatically. Let me borrow the following example: imagine… that the developer manages to get a large amount of agricultural land deprived of infrastructure and connectivity to the city, with the intention of turning it into some productive facility. They get the land for 2 dollars a meter, and they pay the fee to the government… 5 dollars a meter. Then they invest in basic infrastructure, bringing the costs (and the value of the land) up by 10 additional dollars per meter, for a total of 17 dollars per meter. Then the news of the government’s investment comes and, all of the sudden, the price of the land rights goes up to 100 dollars a meter!
Then come the land disputes. Farmers, seeing the land value skyrocketing and having been paid only 2 dollars per meter, demand from developers an additional compensation. And they go to the authorities asking for justice, and they protest in Saigon or in Hanoi… It wasn’t clear to me how these conflicts usually get settled, but it looks like, at least occasionally, farmers get some additional compensation.
“Here in Vietnam”, our Vietnamese friend said, “we are sort in between China and India. Unlike the way it is in China, here the local governments here cannot decide to allocate a piece of land to an investor; each rights owner has to agree to the transaction. So we are not as efficient as China, but certainly more democratic. However, we don’t get to be as democratic as India…”
What struck me as unique is that in this socialist system ownership rights can be far more extreme than in many market economies. If the owner of a land right, urban or rural, doesn’t agree to transfer his or her right, nothing can be built on that piece of land without authorization. And the point is that sometimes people just do not agree, and you get 4 lanes roads turning 2 lanes along a short stretch, or houses placed right in the middle of a racetrack in a stadium...
No comments:
Post a Comment