Forecasted Increase in Commercial Land Rental Prices in Ho Chi Minh City by 18-53%: Impacts on Businesses and the Economy

The Department of Finance in Ho Chi Minh City recently announced a new draft proposal to adjust the percentage rate applied to calculate land rental prices for commercial, service, and non-agricultural land. According to this draft, annual land rental prices in Ho Chi Minh City are expected to increase by 18% to 53% depending on the specific area. This change has attracted significant attention from the business community and economic experts. The adjustment is a strategic move aimed at aligning land rental prices closer to market rates, which could have major implications for Ho Chi Minh City's business ecosystem and macroeconomic landscape.

Adjustment Levels and Applicable Rates by Area

According to the draft proposal, the Department of Finance suggests the following percentage rates for calculating commercial service land rental prices in different areas:

• Area 1 (Districts 1, 3, 4, 5, 10, and Phu Nhuan): The rental rate for commercial service land is set at 1.5%. This central area is bustling with commercial and service activities and serves as a crucial economic hub. This adjustment is not only intended to optimize public revenue from land but also to reflect the added value of land in a region with a high density of economic activity.

• Area 2 (Thu Duc City and Districts 6, 7, 8, 11, 12, Binh Thanh, Binh Tan, Tan Binh, Tan Phu, Go Vap): The rental rate here is 1%. This area encompasses districts undergoing rapid urbanization and industrialization. Setting the rate at 1% aims to balance economic development needs with optimal use of land resources, ensuring that growth in this area isn’t hindered by excessive land rental costs.

• Area 3 (Suburban districts including Hoc Mon, Cu Chi, Binh Chanh, Can Gio, and Nha Be): The rate here is 0.75%. These suburban areas are less developed and are still attracting investment. A lower rental rate is intended to encourage investment, infrastructure development, and enhanced production and service activities, helping to close the development gap between central and suburban areas.

The above rates indicate an average increase in commercial land rental prices from 18% to 53%, compared to previous regulations (Decision 50/2014), where the rate ranged from 1% to 2%. This adjustment aims not only to reflect the true economic value of the land but also to improve the quality of land resource management and utilization, with the long-term goal of optimizing revenue for infrastructure and public service development.

Impact on Businesses and the Economy

Although the adjustment is intended to bring land rental prices closer to market values, the substantial increase will directly impact the operations of many businesses, especially those in the service, commercial, and manufacturing sectors. According to the Ho Chi Minh City Real Estate Association (HoREA), the increase in land rental prices in areas such as Thu Duc City, Binh Tan District, and suburban districts (Hoc Mon and Cu Chi) could place considerable pressure on small and medium-sized enterprises. This is particularly challenging for new businesses or those striving to recover from the COVID-19 pandemic, as rising land rental costs could hinder their ability to operate sustainably.

Businesses located in industrial parks and export processing zones are also likely to feel the impact. Although the percentage rate has been reduced, the adjusted land prices have surged significantly (by 5 to 38 times), keeping actual rental costs high. This could lead to increased production costs, negatively affecting the competitiveness of these companies. Consequently, some businesses may consider restructuring, downsizing, or even relocating to areas with lower rental costs to reduce their operating expenses.

In the real estate sector, the increase in land rental costs will also affect rental and sale prices for commercial and service projects. Developers may need to adjust sales prices to offset rising costs, potentially leading to higher commercial property and housing prices. This increase could reduce investors' and consumers' access to the Ho Chi Minh City market, potentially diminishing the city’s attractiveness as an economic investment center.

HoREA’s Proposal to Reduce Rental Rates

To mitigate the adverse effects of rising land rental prices, the Ho Chi Minh City Real Estate Association (HoREA) has proposed reducing the percentage rates applied to calculate commercial and service land rentals, specifically:

• For commercial service land: The percentage rate for Area 1 should be 1.25%, Area 2 at 0.75%, and Area 3 at 0.5%. This adjustment aims to ease financial pressure on businesses, especially small and medium-sized ones. In the retail and service sectors, where profit margins are relatively low, sharp increases in land rental costs could lead to bankruptcies or forced reductions in operational scale.

• For non-agricultural production land: Area 1’s rate should be 0.75%, Area 2 at 0.5%, and Area 3 at 0.25%. Lowering the rental rate for non-agricultural production land is necessary to support businesses in maintaining competitiveness while promoting industrial development in suburban areas, creating more job opportunities and improving income for workers.

According to HoREA, this adjustment would help companies reduce cost burdens and preserve Ho Chi Minh City’s competitiveness, especially when other cities in Southeast Asia are actively offering incentives to attract foreign investment.

Additional Support Measures from the Government

To mitigate any negative impacts from rising land rental costs, the Ho Chi Minh City government should consider implementing additional support measures for affected businesses. These measures could include tax reductions for impacted companies, particularly small and medium-sized enterprises, and accelerating administrative reforms to facilitate businesses' access to financial support packages and other preferential policies.

The government might also consider offering favorable rental rates for businesses investing in strategic sectors such as high technology, healthcare, education, and in areas needing further development. Providing these incentives would not only promote sustainable economic growth but also lay the foundation for long-term development in Ho Chi Minh City, thereby enhancing the city's competitiveness relative to other regions.

Conclusion

Adjusting land rental prices is essential to reflect the true economic value of land, ensure fairness across areas, and align with market trends. However, the significant increase in rental prices presents challenges, especially as the economy has yet to fully recover from the impacts of the COVID-19 pandemic. HoREA's proposal to lower the percentage rates for calculating commercial service and non-agricultural land rental prices is a solution worth considering to help businesses stabilize and grow.

Furthermore, cooperation between the government and industry associations is crucial to flexibly and effectively adjust policies, safeguarding the interests of both businesses and workers. The Ho Chi Minh City government should listen to feedback from the business community and implement appropriate support policies to help enterprises overcome difficulties, contributing positively to the sustainable and comprehensive development of the city’s economy.