Easier Procedures for IZ Establishment: A Boost to Investment Attraction

10:58:10 AM | 6/28/2022

Decree 35/2022/ND-CP issued on May 28, 2022, replacing Decree 82/2018/ND-CP, featured the removal of procedures for the establishment of industrial zones, aiming to reduce administrative procedures for industrial zone developers. At the same time, it further decentralizes state management to the Ministry of Planning and Investment and the Provincial People's Committee in industrial zone operation. This move is highly appreciated by many investors for reducing investment licensing procedures in industrial parks, especially when industrial parks can obtain investment licenses as soon as they are approved.

More supply of Industrial zones

According to the Ministry of Planning and Investment, by the end of 2021, as many as 397 industrial zones were established (including 352 industrial zones outside economic zones, 37 industrial zones in coastal economic zones, eight industrial zones in border economic zones) with a total land area of 122,900 ha. 291 industrial zones are operational with a total land area of 87,100 ha, including 58,700 ha of rentable industrial land and 106 industrial zones are under construction, covering 35,700 ha. The occupancy rate is 70.9%, as much as in late 2020.

In the first six months of 2022, the Deputy Prime Minister signed a decision to establish nine new industrial parks with a total area of ​​2,472 ha and a total investment capital of VND29,411 billion. Licensed projects are required to be built within 3-4 years and have a lifespan of 50 years from the date of establishment. Thus, these new industrial parks will probably come into operation from the end of 2023 to 2025.

According to SSI Research, currently, the demand for land rental in Vietnam's industrial zones continues to grow positively as flight route reopening and vaccine passport applications help signed MOU contracts complete investment procedures. VND/USD exchange rate is more stable than that of Indonesia, Thailand, India, Malaysia and other countries. Besides, Vietnam’s FDI attraction policies such as corporate income tax (CIT) of 0% in the first four years of operation and a 50% reduction in the next five years; preferential policies on social housing for workers in industrial zones in Decree 35/2022 and Decree 82/2018/ND-CP; and the shift of production from China to Vietnam amid China’s continued Zero Covid policy are positive factors that make Vietnam attract more investors.

According to Jones Lang LaSalle Group (JLL) - the world's leading provider of real estate and investment management services, two industrial parks went into operation in southern Vietnam in the first quarter of 2022, namely VSIP 3 in Binh Duong (​​1,000 ha) and Amata Long Thanh Hi-tech Industrial Park (410 ha), bringing the total IP land bank in the South to 25,220 ha. At the same time, in the North, the construction of Thuan Thanh I Industrial Park in Bac Ninh province has brought a positive signal to the market, adding 160 ha of land for lease, expanding the total rentable land in the North to more than 10,024 ha.

FDI inflows into the industrial estate and manufacturing in the North are strongly growing, according to JLL. Notably, VSIP Bac Ninh projects increased investment capital by nearly US$941 million and Goertek Group's manufacturing plant in Que Vo Industrial Park, Bac Ninh raised its capital by nearly US$306 million. The occupancy rate of industrial parks in the North in the second quarter stayed at 80%, much higher than 75% a year earlier. The average price of industrial land in the first quarter of 2022 was US$109 per square meter per renting cycle (+9.2% from a year-ago period).

Meanwhile, industrial zones in southern Binh Duong and Long An continue to catch the fancy of investors. Notably, despite being newly built, VSIP 3 has attracted more than 30 companies who are seeking to hire 175 ha. Long An province also received Coca Cola's factory investment project worth more than US$136 million in Phu An Thanh Industrial Park. The occupancy rate is 85%. Industrial park rents grew 9% from a year earlier to US$120 per square meter per cycle.

Slowing site clearance

Although legal procedures concerning investment licensing of industrial zones have been simplified, the progress of compensation and clearance is still quite slow, likely leading to a delay in investment activity.

In fact, compensation costs have increased sharply. The land price bracket for the period 2020-2024 was issued in most provinces and cities, replacing that applied in 2015-2019, with sharply rising prices in industrial centers. For example, Ho Chi Minh City has an average annual growth of 20%; Hanoi, 15%; Dong Nai, 1.5-3 times; Binh Duong, 20-45%; Ba Ria - Vung Tau, 50%; Binh Phuoc, 84%; Bac Ninh, 40%; Long An, 60%; Bac Giang, 36%; and Hung Yen, 39%.

Specifically, the capital base of projects in Sonadezi Chau Duc increased by 63% in 2022. Particularly, the cost of site clearance expanded by 90% over the same period of 2021. The investment fund in Phu Thuan Industrial Park (Ben Tre) was added by 61% mainly due to an increase in compensation and clearance costs.

In addition, compensation and clearance, especially for existing households, are very difficult. According to SSI Research, compensation and clearance is carried out by the District Land Fund Development Center but, for industrial zone projects, it is approved by the Provincial People's Committee. In reality, it is time-consuming because there are very large differences in compensation and clearance prices year by year. Enforcement against uncooperative land-owners households may take 1-2 years. These reasons cause slowing site clearance.

By Anh Mai, Vietnam Business Forum