Legal Violations in Land-Use Purpose Changes Lurking in Vietnam Real Estate M&A, and the Risks Involved: 8 Points Foreign Investors Should Watch
NEXORA LAWFIRM has a strong track record supporting foreign companies and investors with legal due diligence and land-law compliance in Vietnam real estate M&A. Among the risks involved, unauthorized changes to land-use purpose, or acquiring land for a use that does not match its actual designation, can constitute a serious legal violation and warrants careful examination. This article is written for those interested in Vietnam real estate M&A, and explains — through key topics such as "procedures for changing land-use purpose," "restrictions on licensing in real estate acquisitions," "risks and sanctions for violations of the Land Law," "consistency with urban planning," and "land use by foreign nationals and foreign-invested enterprises" — the legal issues and practical points that should be understood in advance.
01 - Background and the Importance of Awareness
In Vietnam, changes in land-use purpose (i.e., converting the designated category of land — for example, from residential land to commercial/business land) are among the areas of investment activity carrying the highest legal risk. In recent years, the Government Inspectorate conducted a broad inspection of land-use-purpose conversions during the period 2011–2019 and found that numerous legal violations existed in major real estate development projects in Vietnam's principal urban areas.
In its inspection findings dated September 27, 2024 (Document No. 359/KT-TTCP), the Government Inspectorate identified a number of serious violations, and in cases warranting criminal investigation, referred the matters to the police authorities.
For foreign investors currently considering M&A transactions, projects, or acquisitions of land use rights in Vietnam's real estate sector, it is critical to identify these types of violations in advance. Doing so makes it possible to prevent financial losses that could arise after the investment is made, and to legally secure the investor's rights and interests.
02 - Representative Violations Relating to Changes in Land-Use Purpose in Vietnam
Based on recent government inspection reports, the following representative legal violations have frequently been identified in the process of changing land-use purpose. These violations can potentially develop into project cancellation, financial risk, or even criminal liability down the road, and represent a material risk factor for investors considering the acquisition or development of real estate projects.
(1) Improper Setting of Land Prices
Cases in which the land-use fee applied at the time of a land-use-purpose change is improperly set at an artificially low level are frequent. This includes approvals granted at prices below market value, or the deliberate extension of a project's term in order to reduce the land-use fee owed.
📌 Examples:
In Hanoi, the land-use fee was set at VND 57.5 billion below the amount approved by the superior authority, causing a loss to the state budget.
In Binh Duong Province, extending a project's term from three to five years reduced the land-use fee owed by as much as VND 1.48 billion.
➡️ These practices give rise to losses to the state budget, invalidation of price-approval decisions, and the risk that those responsible will face administrative or criminal liability.
(2) Failure to Meet, or Delay in Meeting, Financial Obligations
There are numerous reported cases of companies delaying or failing to pay the land-use fee, rent, taxes, and various charges associated with a change in land-use purpose.
📌 Example:
In Binh Duong Province, a developer acquired more than 64,000 square meters of land and proceeded with its project without fulfilling the associated legal obligations, including payment of the land-use fee.
➡️ This results in the Land Use Right Certificate (LURC) being withheld, and creates risk of late-payment penalties, fines, and land recovery by the state.
(3) Procedural and Documentation Violations
Many violations involve obtaining approval for a land-use-purpose change without following the proper procedure. There have also been cases where local governments approved a land-use change beyond their authority, or granted approval inconsistent with urban planning.
📌 Examples:
In Ho Chi Minh City, a vice-chairman of the city approved a land-use change beyond his authority.
In Hanoi, in violation of the Prime Minister's approval, more than 14,000 square meters of land was converted to residential use, and 312 units were improperly used (for short-term rental or subdivided sale).
➡️ Because subsequent land valuations and approvals become tainted as a chain of illegality, there is a risk that the project itself will be rendered void.
(4) Failure to Conduct Public Auction or Tender
Under Vietnam's Land Law, transfer or lease of land is, in principle, required to go through an auction or tender process. In practice, however, many projects have bypassed this requirement, with state-owned land transferred directly to private companies without an auction.
📌 Examples:
In Hanoi, 23,380 square meters of land on Nguyen Trai Street was transferred directly to a company for residential development, without auction or compensation.
In Binh Duong Province, more than 64,000 square meters of land was transferred as subdivided residential land without going through an auction, with an estimated state loss risk of approximately VND 220 billion pointed out.
➡️ This results in a lack of transparency and financial loss, and carries the risk that administrative procedures will need to be reconsidered or the contract voided.
(5) Illegal Fundraising and Pre-Sales
There are also many cases of illegally raising funds from customers or partners (so-called "selling on paper," i.e., selling units before the project's legal conditions are in place).
📌 Examples:
In Binh Duong Province, a company that had neither paid the land-use fee nor obtained the required legal licenses entered into land-plot sale contracts.
In one project, funds were raised even before the company had obtained title to the land. The proceeds were not recorded in the company's books, and it was concluded that, in addition to violating the accounting law, the conduct could constitute fraud.
➡️ These practices can develop into serious legal problems, including harm to victims, contract invalidation, and criminal liability for the company.
Violations relating to changes in land-use purpose give rise to material legal risk spanning administrative, financial, and criminal dimensions. Because such conduct often affects the legitimacy of the project as a whole, thorough legal investigation and risk analysis in advance is essential for foreign investors considering the acquisition of a project or an M&A transaction.
03 - Anticipated Legal Risks and Their Impact
Where a violation of the Land Law or a deficiency in the licensing process has occurred in a Vietnamese real estate development, the consequences can be extremely serious, and the resulting legal liability and losses may extend even to a good-faith investor who has newly acquired the project. The principal legal risks and their consequences are summarized below.
(1) Risk of Land Recovery and Project Cancellation
Under Vietnam's Land Law, land may be recovered without compensation in cases of an unlawful change in land-use purpose, or improper land allocation (for example, land allocated without going through an auction).
For example, if a project that did not follow the proper procedures had previously acquired land unlawfully, the decision allocating that land may later be revoked, with the risk that the entire project is cancelled.
As a result, even a foreign investor who has newly acquired the project may lose the land use right and be unable to recover the capital invested.
(2) Pursuit of Administrative Penalties and Criminal Liability
Where a project has been operated without following the proper land procedures, administrative sanctions (fines, business suspension, orders for additional tax payment, etc.) may be imposed, and, depending on the severity of the violation, criminal liability may also be pursued.
In practice, there have been cases in which government inspection authorities referred violations to the Ministry of Public Security, resulting in criminal investigation (for example, fraud charges in connection with unlawful real estate sales).
(3) Remediation of Financial Obligations and Damages
A company found in violation may be ordered to take remedial measures such as the following:
Additional payment of the shortfall in land-use fees (including penalties)
Repayment to the state of losses incurred (for example, the difference resulting from an improper preferential rate)
Invalidation of unlawfully executed sale/purchase or capital contribution agreements, together with a refund to customers plus interest
Completion of any missing legal procedures (for example, redoing the auction, or legitimizing the designated land use)
This carries the risk of prolonging the project and having a significant impact on cash flow and business planning.
(4) Financial and Reputational Risk
For a foreign investor who has acquired the project, the legal problems described above translate into additional costs (back payments, fines, damages) and the risk of impairment to the amount invested.
Furthermore, suspension or cancellation of the business may cause the business plan to collapse and market opportunities to be lost, resulting in serious economic loss. The fact that the investor invested in a project involving a legal violation can also adversely affect the investor's external credibility and corporate image — a risk that should not be overlooked. Being tied up in responding to legal issues also causes indirect harm, in that management resources are diverted away from the company's core business.
Violations of the Land Law Are Not Merely "a Thing of the Past" — They Are a Direct Risk to Today's Investors
In Vietnam, violations relating to changes in land-use purpose or the manner in which land was acquired can carry legal consequences over a long period, and heavy liability may extend even to a new investor who acquired the project midway through.
Accordingly, before acquiring a project, it is essential to thoroughly investigate the history of land acquisition, its use, and its record of regulatory compliance (i.e., due diligence), and it is recommended that a legal review by local counsel be conducted before entering into a contract, where necessary.
04 - Practical Recommendations for Foreign Investors to Avoid Legal Risk
For foreign investors considering an M&A transaction, the acquisition of land use rights, or a business transfer relating to a real estate project in Vietnam, taking preventive measures against legal risk in advance is of critical importance. Below are eight specific recommendations drawn from local practice.
(1) Conduct Thorough Legal Due Diligence
Before investing, it is necessary to focus on investigating the history of the land's acquisition, any changes in its designated use, and the legitimacy of the approval process obtained from the government.
The seller should be asked to provide the following related documents:
The decision allocating or leasing the land
The approval of any change of use
Materials relating to compensation and land recovery
Receipts and tax confirmation documents relating to financial obligations (land rent, etc.)
It is important to confirm whether the land was properly put to auction and whether the allocation decision complied with the law in force at the time.
(2) Scrutinize Land-Related Financial Obligations
Confirm the payment status of the land-use fee, rent, taxes, and other costs relating to the project.
Where the project previously benefited from an improper preferential rate (for example, an abnormally low land-use fee), the risk of a subsequent back-payment demand should be assessed.
Any outstanding late-payment penalties or unpaid amounts should also be confirmed.
(3) Confirm Consistency with Urban Planning and Approval of Use
Confirm whether the project is consistent with the local land-use plan and urban planning, and whether the relevant approval procedures were legitimately obtained.
In particular, it is essential to confirm the following documents:
The Investment Registration Certificate (IRC)
The construction permit
The decision approving the urban plan
It is necessary to determine whether there has been any unlawful change of use or of the plan.
(4) Confirm Fundraising and Customer Contracts
Confirm whether the seller has previously raised funds using the project as collateral, or has unlawfully raised funds from customers. If reservation or capital-contribution contracts have already been signed, care is needed, as there is a risk of inheriting the legal obligations arising from them. Wherever possible, the M&A should be carried out only after the seller has resolved any unlawful contracts and converted them into a lawful form.
(5) Include Robust Representations and Indemnification Provisions in the M&A Agreement
The transfer agreement should expressly include the seller's warranty of legal compliance, along with an indemnification obligation and price-adjustment provision in case a violation is later discovered.
For example:
A warranty that "the project does not violate the Land Law or other applicable laws"
"Indemnification by the seller if damage arises from a violation"
"Reservation of a right to terminate the contract if a material violation is discovered"
This makes it possible to minimize the investor's exposure to loss.
(6) Make Use of a Legal Review by Local Counsel
Vietnam's land-related laws are complex and frequently amended, making advice from a local legal specialist familiar with local practice indispensable.
A specialist can be expected to identify risks that are easy to overlook, such as:
Procedural deficiencies (for example, licenses not yet obtained, or a complaint under review)
Undisclosed risk of administrative investigation
Updates on recent legal amendments (for example, the planned implementation of the 2024 Land Law)
(7) Pay Particular Attention to Land Originating from State-Owned Land or State-Owned Enterprises
Past government inspection cases show that projects converted from state-owned land or from state-owned enterprises carry a concentrated risk of illegality.
The following points should be kept in mind:
The legitimacy of the land transfer (whether it was approved by the competent ministry, and whether the land was properly included in the company valuation)
Whether the land was put to auction at the time of equitization (IPO)
Whether it was transferred at an abnormally low price
Where the risk is significant, it may be prudent to decide against acquiring the project.
(8) Maintain Proper Compliance Management After the M&A
Even after the M&A is completed, continued compliance with current law must be ensured with respect to the business taken over.
Proper procedures must always be followed in cases such as:
A change to the project's content
A change in land-use purpose
Amendment of the construction permit or the Investment Registration Certificate
Avoiding unlawful design changes or fundraising helps prevent additional violations and guidance/intervention from the authorities.
Project M&A in Vietnam carries the risk that past legal violations or procedural deficiencies become the responsibility of a new investor.
Careful pre-investment investigation, risk-sharing design at the contract stage, and building a compliance framework after the M&A make it possible to minimize risk while achieving stable business operations.
◆ Conclusion ◆
In sum, when foreign investors enter the Vietnamese real estate market through the acquisition of a project or an M&A transaction, they must pay sufficient attention to "land-related legal risk."
In particular, past violations connected with changes in land-use purpose often do not surface at the early stage, and may later develop into a serious risk.
To avoid such risk, it is important to:
Conduct thorough prior legal due diligence through local counsel,
Maintain strict compliance with current regulations, and
Adopt appropriate risk-diversification measures.
A thorough understanding of the law and of local practice, together with careful handling, directly protects invested capital and is the key to sustaining stable, long-term management. Using past representative trouble cases as "lessons learned," rather than merely as "risks," and making sound investment decisions on that basis, is the first step toward success.