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Breaking the laws of the land: Vietnam’s real estate scandals

For a country whose regime was founded as a land-to-the-tiller movement, one would expect the Vietnamese government to be more sensitive to real estate issues. While abuse and corruption have been a persistent irritant in the countryside, they’ve increasingly spread to the cities and impacted the middle and emerging middle classes.

Land has always been a very sensitive issue in Vietnam. Technically, the state owns all land, but since the Doi Moi reforms and the implementation of a contract based agricultural system in the mid-1980s, people can acquire leases. 

Yet, not all land is created equal, and the best often goes to local officials and their cronies. Local-level officials routinely appropriate land for development projects or to profit from urban sprawl. 

Farmers complain of unfair compensation. And even when compensation is market value, the forced sale is an irritant. Farmers are often not provided with new skills to make a living.

Social media has amplified these cases, resulting in an increased number of civil demonstrations.

To respond to the growing unrest, the National Assembly recently passed legislation that consolidated a myriad of existing local-level security forces to augment the police. RFA reported some 3.5 trillion dong (US$145 million) was earmarked for what could be a 400,000-man force, with powers of arrest. 

But corruption and a lack of government accountability in the real-estate sector is also being felt by the urban middle class, though in very different ways.

Vietnam’s real estate market has been booming. By 2021, the real estate sector accounted for at least 12% of GDP, up from 2% in 2018, fueled by the country’s burgeoning middle class. 

Workers at a construction site in Hanoi, Vietnam in 2023. (Hau Dinh/AP)
Workers at a construction site in Hanoi, Vietnam in 2023. (Hau Dinh/AP)

Property developers rushed to develop apartment complexes, luxury villas, and malls. The more politically connected they are, the cheaper the land and faster the approvals. 

In return for approvals, local officials receive bribes or real estate. Proceeds of land sales are supposed to go into local coffers to pay for government services, but are routinely misappropriated.

Developers tried to finance their projects through pre-sales, but this was never sufficient. Beginning in 2016, developers began turning to the nascent corporate bond market to raise funds. 

And raise they did. For the developers, it was literally minting money. NovaLand, alone, raised some 160.7 trillion dong (US$6.5 billion) through the bond market by 2021. Some US$15 billion in real estate debt alone will mature in 2025. 

Defaults, followed by investigations

But then the defaults began. So, too, did the investigations. 

In the first half of 2022, at least four high profile real estate executives were arrested for either stock price manipulation or fraud in financial disclosures in bond sales. 

Then came the big one: Truong My Lan, the CEO of Van Thinh Phat. 

The Ministry of Public Security (MPS) said upon her arrest on October 8, 2022, Lan had “fraudulently engaged in the issuance and trading of bonds in contravention of the laws to appropriate thousands of billions of dong from the people.”  

They were not even close. 

In the end, the MPS concluded that she had raised 30 trillion dong (US$1.23 billion) in bonds and embezzled some US$12.53 billion from Saigon Commercial Bank that she secretly controlled, through more than 900 shell companies. 

To put that into perspective, that’s equivalent to 3.2% of Vietnam’s GDP. 

Newly built buildings jam the skyline in Hanoi, Vietnam in 2016. (Tran Van Minh/AP)
Newly built buildings jam the skyline in Hanoi, Vietnam in 2016. (Tran Van Minh/AP)

Lan’s scheme worked because she paid US$5.2 million in bribes to 24 government regulators. In all, 15 officials from the State Bank, three from the Government Inspectorate, and one from the State Audit Office will face charges. 

To date, no one higher than the former head of the department of inspection and supervision of the State Bank’s office in Ho Chi Minh City has been investigated, let alone prosecuted.

Not coincidentally, the government’s investigation into Lan has shed no light on how she acquired some 156 properties, including some in the most high-end district in Ho Chi Minh City. She was well-served by her political connections, and no one wants to open up that can of worms. 

Another recent case merits attention, though with a mere US$345 million in embezzled funds. Property developer Tan Hoang Minh got into financial trouble during the pandemic. Between July 2021 and March 2022, three of its subsidiaries began selling bonds to raise funds. 

But the lack of scrutiny and oversight allowed them to fabricate business activity and withhold or obfuscate pertinent financial information in their disclosures. The category of the nine tranches of bonds was only supposed to be sold to institutional investors, but they marketed them to retail investors.

Of the 10.3 trillion dong  (US$437 million) raised through those bond sales to 6,630 investors, Tan Hoang Minh’s chairman, Do Anh Dung, embezzled 8.6 trillion dong (US$354 million). Three apartment buildings were left unfinished, leaving homebuyers in the lurch.

Why fraud in the real-estate market matters

Real estate is where Vietnam’s middle class parks their money. They have few other investment alternatives, while the emerging middle class struggles to buy a home.

Access to vast amounts of capital, without regulatory oversight, created – at the same time – an oversupply in the housing market and a bubble.

Do Anh Dung, for example, flew onto the authorities’ radar screen when he made substantially above-market bids on properties to drive up all real estate prices. Truong My Lan purchased much of her property on the secondary market from competitors at above market prices. 

Market manipulation was their game. But in the process, they created a glut. 

By August 2023, the 10 largest property developers had a combined US$11.4 billion in unsold inventory. In Ho Chi Minh City, real estate prices are expected to fall 5-7%, while the prices of high-end homes are expected to fall by 10%.

The investigations into several of these real estate developers led to a credit crunch. In short, the State Bank blocked the issuances of new bonds for periods, meaning many developers couldn’t finish their projects.

Vietnamese protest against a proposal to grant companies lengthy land leases in Ho Chi Minh City in a 2018 file photo. (Kao Nguyen/AFP)
Vietnamese protest against a proposal to grant companies lengthy land leases in Ho Chi Minh City in a 2018 file photo. (Kao Nguyen/AFP)

By the end of May 2023, some 1,200 real estate development projects around the country, worth an estimated US$34 billion, were suspended. 

In short, people who bought properties were still paying mortgages for unfinished properties, whose values were falling. 

At the same time, the government’s newfound scrutiny of mid-tier projects and much slower approval process have led to fewer affordable projects on the market for the emerging middle class.

So whether it’s farmers fighting appropriated land, or the urban middle class watching their assets fall in value, there’s a common thread: Land goes to the politically connected, there’s almost always corruption involved, and the government remains unaccountable despite its weak oversight. 

Perhaps instead of a revamped militia force to defend the government against protests, the government could use its existing security, prosecutorial, and regulatory assets to prevent market manipulation and fraud and shore up its legitimacy.

Zachary Abuza is a professor at the National War College in Washington and an adjunct at Georgetown University. The views expressed here are his own and do not reflect the position of the U.S. Department of Defense, the National War College, Georgetown University or Radio Free Asia.