Laos Opens Real Estate Investment Opportunities to Foreigners.
Legal News & Analysis - Asia Pacific - Laos - Dispute Resolution - Construction & Real Estate
15 October 2020
On August 12, 2020, the amended Law on Land No. 70/NA, dated June 21, 2019 was published in the Official Gazette of the Lao Ministry of Justice, replacing the previous amendment of the law from 2003. The new law introduces significant changes to the country’s current real estate regulatory framework, and provides legal means to boost investment in and development of the country’s real estate sector.
Though land in Laos is deemed property of the national community, a Lao national can be granted permanent land use rights, which is as close as Laos gets to the concept of land ownership that exists in other jurisdictions. These can include the right to protect land, along with usage, usufruct, transfer, and inheritance rights. While permanent land use rights remain prohibited to foreign nationals, the new law for the first time opens the possibility for foreign nationals to own and invest in certain immoveable properties in Laos.
Ownership of Structures and Foreign Participation in the Lao Real Estate Market
The Law on Land permits foreign nationals to own structures on Lao land. This seems to follow the new Civil Code, which is now in force, and provides the right of superficies (i.e., anything placed on and attached to the ground—a newly defined concept in Laos), thereby suggesting the possibility of separating ownership of land from that of the structures built upon it.
Specifically, Lao citizens and foreign nationals—regardless of their residency or employment status in Laos—are now allowed to own apartments in condominiums whose construction was authorized by the government. Lao nationals who own an apartment in a condominium are also granted a portion of the land use rights of the condominium in proportion to the size of the apartment. This measure is expected to stir up the real estate market in Laos, as expatriates living in the country and foreign nationals who spend time in Laos are considered to have high potential for investing in apartments.
Although foreign investors are restricted from selling or purchasing land, the law seems to permit foreign investment for the exploration/survey of land, evaluation of standards (either land or construction), and land valuation. In fact, the Law on Land highlights land valuation and the role of private companies in this process. Local authorities remain responsible for this valuation, especially when calculating the compensation to be provided if land is returned to the state (e.g., expropriation) or for the sale of land use rights according to a court judgment. On the other hand, according to the law, private companies can assess land value with respect to the sale and purchase of land, transfer of land use rights, use of land as security, or in-kind contributions to a legal entity’s registered capital. A subsequent regulation is expected to provide more details on this.
Condominium construction is another area that is open to foreign-owned companies. While the construction must be carried out by a legal entity, the law does not restrict foreign ownership of that entity, and in fact expressly provides that condominium construction is open to foreign and domestic investors alike.
Regardless of nationality, investors looking to construct a condominium must first obtain authorization for the construction from the Ministry of Planning and Investment. This authorization allows investors to proceed with the incorporation process to establish a legal entity, obtain a construction permit from the Ministry of Public Works and Transport, and register the land as “condominium land” with the land registry at the Department of Natural Resources and Environment of the relevant province.
As foreigners are prohibited from permanent ownership of land use rights, the Law on Land provides three options for foreign developers of condominium projects:
Leasing land held by Lao citizens for a maximum of 30 years;
Leasing or obtaining concession of land from the state for a maximum of 50 years; and
Purchasing limited land use rights as allocated by the state, for a maximum of 50 years.
This purchase of state-allocated limited land use rights takes place under a regulatory framework introduced by the new Law on Land. Under this framework, land use rights are limited in two ways: time and purpose. As stated above, the maximum term is 50 years, while the purpose is limited to developing specific projects in relation to real estate. Examples might include a residential area that provides different daily services for residents, a condominium or apartment, and house construction. This limitation on types of activities is what makes this state allocation of limited land use rights different from a standard land concession, which typically does not come with such restrictions. The difference may also turn out to be procedural, as the process of purchasing state-allocated land use rights may prove faster than that surrounding the grant of a land concession; however, this remains to be seen from subsequent regulations.
The Law on Land is notably ambiguous in its definition of foreign parties—specifically it does not state whether the phrase includes foreign juristic persons—in relation to the sale of state-allocated limited land use rights. As is frequently the case for parties facing legal questions in Laos, it will be essential to check with the relevant authorities in each instance to determine how they will interpret and apply any unclear elements of the law.
While the former version of the Law on Land (from 2003) made the Lao People’s Court responsible for settling civil claims, the newly amended law now allows these matters to be filed before the Economic Dispute Resolution Center (EDRC), a local arbitration center, for mediation or arbitration.
For disputes with administrative characteristics (e.g., utilization of the land not according to the authorization received, measurements of the land, etc.), complaints must be directed toward the local authorities of the district where the land is located. If the issues remains unresolved, the matter can go to the provincial authorities. If the solution still does not satisfy the parties, then they may file a complaint with the Lao People’s Court.
Development of the Lao real estate market is needed now more acutely than ever, and the Law on Land provides the legal means to accomplish this. While additional guidance from the authorities will bring welcome clarity, the Law on Land itself overhauls the real estate sector by allowing foreign ownership of built property and providing a legal framework for foreign-led construction of condominium projects. Additional regulations—for example, regarding registration of land for condominiums, allocation of the limited land use rights, and so on—will facilitate implementation of the law, provide legal certainty, and bolster confidence for future investment in the country’s real estate projects.
For further information, please contact:
Dino Santaniello, Tilleke & Gibbins