LAND VALUE CAPTURE

IN HO CHI MINH CITY,

VIETNAM
Working towards Fee-Based Mechanisms

APRIL 30, 2017

VALERIE KOH
© FULBRIGHT ECONOMICS TEACHING PROGRAM
Contents
1. Introduction 1
1.1 Research Questions .......................................................................................................... 1
1.2 Methodology .................................................................................................................... 1
1.3 Background ................................................................................................................. 2
Land Use Planning in Vietnam ........................................................................................... 2
Transport Planning and Financing in HCMC ..................................................................... 2
2. Literature Review................................................................................................................... 3
2.1 Land Value Capture – Global Experience........................................................................ 3
2.2 Land Value Capture – HCMC Experience....................................................................... 4
3. Analysis and Case Studies of LVCs ...................................................................................... 5
3.1 Capitalising on Public Land ............................................................................................. 5
3.1.1 Land Auctions of Public Un-Serviced Land.............................................................. 6
3.1.2 Public Land for Infrastructure (Build-Transfer Model) ............................................ 9
3.2 Levying on Private Land ................................................................................................ 13
3.2.1 Developer Exactions and Impact Fees..................................................................... 13
3.2.2 Betterment Levies .................................................................................................... 16
3.2.3 Development Rights ................................................................................................ 19
4. Application to Public Transport: Metro Lines ..................................................................... 22
4.1 Understanding the Status Quo ........................................................................................ 22
4.2 Where and who to charge? ........................................................................................ 23
4.3 How to kick-start institutional reforms?......................................................................... 24
References ................................................................................................................................ 26
Appendix .................................................................................................................................. 28

ABOUT THE AUTHOR

Valerie Koh Xin Yue is an undergraduate student at the National University of Singapore
and an intern at the Fulbright Economics Teaching Program (FETP). This paper would not
have been possible if not for the mentorship and hospitality provided by the faculty and staff
at FETP. Special thanks go to Mr Do Thien Anh Tuan, Mr Nguyen Xuan Thanh, Mr Nguyen
Quy Tam and Dr Vu Thanh Tu Anh for their valuable comments.
1. Introduction
Vietnam has one of the highest urbanisation rates in Southeast Asia. Ho Chi Minh City
(HCMC), as the country’s key economic hub, receives a bulk of the urban migration. This
population growth, coupled with high foreign investment flows, have increased land prices in
the city. Hence, it is now the perfect opportunity for the local government to capture these land
value increases to finance critical urban transport infrastructure development to continue its
strong GDP growth rates. While the transport sector includes airports, seaports, roads and
bridges, and the public transit system, this paper will focus largely on the last two sub-sectors
as it is interested in transport and connectivity within the city. Land Value Capture (LVC)
mechanisms have been studied and applied extensively throughout the world and stands as a
legally justified and economically efficient way to raise public funds in areas of massive urban
growth. Thus, this paper hopes to explore the ways HCMC can use LVC techniques to finance
the construction of transport infrastructure.

1.1 Research Questions

1. What mechanisms can HCMC use to capture land value increases to raise funds for
urban transport infrastructure?
2. How HCMC can learn from past case studies to ensure the success of these
mechanisms?

This paper comprises of four main sections. Firstly, the introduction covers the research
question, methodology, and a background of the issue of urban infrastructure financing in
HCMC. Following which, the second section will be a review of literature on the global
experience of LVCs and HCMC’s experience with LVCs, or more specifically land sales and
land exchanges in the city. Thirdly, the paper studies five broad LVC techniques by looking at
different cases studies of developing countries and uses a SWOT framework to assess the
usefulness of each technique. Finally, the paper concludes with policy recommendations for
HCMC local government, paying particular focus to how LVCs can be useful to finance the
construction of its planned metro lines.

1.2 Methodology
To answer these research questions, this paper utilises news articles, online journals and reports
by think-tanks, universities and international developmental organisations. Any factual
evidence cited has been cross-referenced with other works to ensure accuracy and up-to-
dateness as of April 2017.

The ideas in this the original paper was presented to the faculty at Fulbright Economic Teaching
Program during a seminar. The final product presents analysis based on the review of secondary
literature made by the author and comments from faculty members who are experts in
infrastructure in HCMC.

1
1.3 Background
Land Use Planning in Vietnam
Land in Vietnam is classified into three broad categories – Agricultural land, Non-agricultural
land and Unused land1. Non-agricultural land will include land used for residential, commercial
or social (public spaces) purposes. Legally, all land in Vietnam belongs to the people, and the
State represents the people by managing land through the issuing of LUR (land use rights). In
this brief, “land” is interchangeable with LUR, which means that when a developer is said to
receive land, s/he is understood to own the LUR attached to the parcel of land.

The government can “allocate”, “recognize” by or “lease out”2 LURs to private and third-sector
entities. For leased out LURs, private actors are also allowed to transfer these LURs, along
with its land-attached assets (stored in a Pink Book)3, to other private actors once all land fees
and rent have been paid to the government. Simply put, even though ownership of land is
legally impossible, private developers – local or foreign –, can receive land, build on it and sell
this improved land away. This makes for a booming real estate market – a key factor for LVC
mechanisms to work.

A key policy relating to land use planning is the “Adjustment to HCMC Construction
Masterplan” up to 2025 which was published in 2007”. Based on the plan, there is a
comprehensive strategy to create a polycentric city model (See Appendix 1) that disaggregates
urban growth by concentrating the provision of services in “sub-centres and satellite towns”.
In the plan, special care was also taken to use transport-oriented development concepts to guide
urban planning. Transport-oriented development supports the policy agenda proposed in this
paper – which is to use transport planning to guide urban plans and capitalise on land value
increases near transport networks to fund more transport infrastructure.

Transport Planning and Financing in HCMC

Another area of policy relating to the discussion in this paper is urban transport planning. A
key policy relating to urban transport infrastructure in HCMC is “Decision 568” in 2013
(henceforth referred to as the 2013 plan), which updates, clarifies and identifies priority
transport projects stated in the “Decision 101” promulgated in 2007. The 2013 plan identified
the building of six metro lines, two monorail lines, one tram line and six bus routes. Per the
plan, three of the six new metro lines should open by 2020 and the market share of urban public
transport should be 25%. Additionally, the plan stipulated the upgrading and construction of
multiple highways, ring roads, overhead roads, bridges, cross-river tunnels, and other
secondary roads.

The reasons why HCMC has consistently failed to deliver on those plans are complex and
multifaceted. However, most scholars and the country’s Ministry of Transport4 have cited the
same few key constraints which includes the lack of effective land planning expertise, weak

1
"Land Law," ed. The National Assembly (2013).
2
Ibid.
3
Keppel Land’s Guide for foreign investors on residential property investment in Vietnam (Oct 2016)
4
"Viet Nam Socialist Republic: Transport Sector Assessment, Strategy, and Road Map," (Asian Development
Bank, 2012).

2
administrative capacity, and shortage of financing sources. This paper will focus on the last
aspect as financing remains as one of the key factor5.

HCMC faces a shortage of financing sources for their urban transport infrastructure for four
main reasons. Firstly, Vietnam’s mounting sovereign debt limits the ability of the central
government to allocate budget to HCMC to finance large-scale projects. Secondly, as Vietnam
is now a middle-income country, it can no longer get Official Developmental Aid funds,
limiting its traditional funding source. While developmental banks are hoping to continue
offering concessional loans through alternative arrangements6, it is not sufficient to pay for the
extensive infrastructure development needed. Thirdly, this quagmire has also been exacerbated
by a recent budget cut7 which was brought in effect this year and will last till 2020. This means
that the central government will be providing HCMC with less funds than before. Lastly, the
city’s history of inefficient public investments has created substantial financial burden on the
municipal budget, the effects which are still being felt today. In short, HCMC needs new ways
of generating revenue to finance their infrastructure projects.

In the grand scheme of things, multiple scholars8 have also pointed out that the plans require
an impractical and overly ambitious percentage of the GDP to be directed towards
transportation infrastructure. Thus, this problem with the dearth of financing is largely due to
unfeasible targets. Nonetheless, it is also important for HCMC to continue to diversify their
financing sources, while the Vietnamese government recalibrates these grand plans to work
towards more achievable goals. This paper will examine key steps taken by other cities to
diversify their sources of financing through the usage of LVC techniques.

2. Literature Review
2.1 Land Value Capture – Global Experience
Many scholars have written about LVC as a way to finance infrastructure construction. While
there have been extensive research done in this area, this paper focuses on the works of Peterson,
Alterman, Sukuzi, and colleagues. The principal idea behind LVC is that the government
should capture land price hikes as the demand for, thus market value of, land in HCMC
increases.

Peterson9 reviews the experiences of cities from developed, and developing countries in land-
based financing. He uses ten different case studies from six developing countries on how
governments can use land swaps, land sales, or fees to generate revenue to be invested in
infrastructure. Particularly, the development of Cairo involved massive land sales which paid
for the rapid infrastructure construction that was necessary given its accelerated urbanization
rate. The key policy tools he delves into are developer exactions, land sales/ leases, public-

5
Clément Musil and Simon Charles, "Building an Ambitious Public Transport System in Ho Chi Minh City
(Vietnam)," (Urban Development Management Support Centre - PADDI, 2015).
6
"Japan Supports Vietnam Development: Jica," [Link] 2017. ; "Pm Asks for Adb’s Loans
for Gender Equality Projects in Vietnam," Vietnam News Agency 2016.
7
Nguyen Hoai, "Hcmc Warns Proposed Budget Cuts Could Have 'Dire Consequences'," Vn Express 2016.
8
Musil and Charles, Building an Ambitious Public Transport System in Ho Chi Minh City (Vietnam); Du Huynh,
"The Misuse of Urban Planning in Ho Chi Minh City," Habitat International 48 (2015).
9
George E Peterson, Unlocking Land Values to Finance Urban Infrastructure, vol. 7 (World Bank Publications,
2009).

3
private partnerships (PPPs), betterment levies, impact fees, and acquisition and sale of excess
land.

Alterman 10 divided land value capture tools into three sub-types – embedded, direct, and
indirect. More pertinent to this paper is her focus on Israel’s, Britain’s, and Poland’s experience
with betterment levies. Through these cases, the key takeaways are that there must be inter-
agency and public consensus on how revenue from the levies should be spent and the
calculation of these levies must be assessed parcel by parcel instead of being uniform. This
would allow for a more equitable and palatable method of land value capture.

Suzuki and colleagues11 focused on the development of transport infrastructure and how land
value capture can supplement other financing strategies. Using cases from India, China, Tokyo
and Hong Kong SAR, the report explores how major transport networks are built and how land
value gains were captured to recoup on construction costs. Some key examples include land
lease auctions in Nanchang and the sale of developmental rights in Hyderabad.

2.2 Land Value Capture – HCMC Experience

According to Huynh and Ngo, Labbe and Musil, and Musil and Perset, HCMC government has
used LVC mechanisms to finance infrastructure construction. The two main methods used have
been exchanging land for infrastructure (Land-for-Infrastructure for short) and sales of LUR.

Huynh and Ngo12 covered three cases of infrastructure development in HCMC. Firstly, Phu
My Hung, which is the most successful project that utilizes land exchanges to date. In this
project, land swaps and land auctions helped build high quality and good roads in the urban
town project. However, the success of the project must be qualified as it only actualized a
portion of what was originally planned. Secondly, the authors used the Thu Thiem Peninsular
Project to exemplify the complications of land acquisition and compensation issues. Thus, they
suggested that the exercise of eminent domain must be used judiciously and only in areas where
land prices are low and sparsely populated. Lastly, the authors used the Tan Son Nhat – Binh
Loi outer ring road project to illustrate the need to execute land exchanges with more
meticulous managment. The project suffered many delays as the private investor has already
been compensated with land that is not directly near to the road and hence had no incentive to
speed up the completion of the project. These three cases exemplify how problems could arise
when LVC mechanisms are managed properly.

Labbe and Musil 13 argues that Land-for-Infrastructure (LFI) experiences in Vietnam has
“undermined official planning orientations and regulations”. The bartering of land for
infrastructure has allowed private developers the free hand to ignore master plans and created
a haphazard development of new towns once they receive the free land. Citing data from Hanoi,

10
Rachelle Alterman, "Land Use Regulations and Property Values: The 'Windfalls Capture' Idea Revisited,"
(2012).
11
Hiroaki Suzuki et al., Financing Transit-Oriented Development with Land Values: Adapting Land Value
Capture in Developing Countries (World Bank Publications, 2015).
12
Alex Ngo and Du Huynh, "Urban Development through Infrastructure Land-Based Financing: Cases in Ho Chi
Minh City," (2010).
13
Danielle Labbé and Clement Musil, "Periurban Land Redevelopment in Vietnam under Market Socialism,"
Urban Studies 51, no. 6 (2014).

4
Da Nang and HCMC, the authors showed that public amenities and low-cost housing – basic
but unprofitable infrastructure – are often left out of the construction process.

Musil and Perset14 delve into financing constraints that the HCMC government faces while it
pursues an ambitious transport plan. Despite using various financing tools – namely PPP
contracts, land reserve management, selling bonds, to supplement state budget and
concessional loans, finance is still a bottleneck to the development of urban public transport
infrastructure. One key recommendation germane to this policy paper is that the authors
proposed that HCMC expand their land-financing tools to include robust tax systems that will
be able to recover the cost of infrastructure. They cautioned that while land swaps projects
were successful in the past, the municipal land reserve is becoming scarce, hence land sales
and swaps is not sustainable in the short term.

3. Analysis and Case Studies of LVCs

Adapting from George Peterson’s 2009 book, and Huynh’s paper in 2010, the author has
identified 5 key land-based financing techniques that the HCMC municipal government can
explore. The first two techniques require the sale or trading of public land while the other three
techniques would impose fees on privately-held land.

3.1 Capitalising on Public Land

There are four subtypes of public land (see Figure 1). Parcels of public land in HCMC can
either be controlled by the i) HCMC’s government, ii) the municipal-level state-owned
enterprises (SOEs), iii) the Vietnamese state or iv) the state-level SOEs. To mobilise the public
land for LVCs, the HCMC government can only use land that it controls, which is subtype (i),
and has no right to land that falls under the other three subtypes. The government can seek
permission from the central committee to recall public land under the control of the other statal
or parastatal entities. However, this would require a lengthy administrative process, and more
importantly, other agencies would not want to relinquish their hold of such a valuable asset. As
of now, the land fund that the municipal government has access to is scarce15, yet there are
some land parcels in the fund that the government can capitalise on with land-based LVC
techniques.

14
Clément Musil and Morgane Perset, "Financing Transport Infrastructures in Ho Chi Minh City (Vietnam) Tools,
Innovations and Challenges," (Urban Development Management Support Centre - PADDI, 2016).
15
Musil and Perset, Financing Transport Infrastructures in Ho Chi Minh City (Vietnam) Tools, Innovations and
Challenges

5
 Public Land

HCMC Level State Level

Municipal Government State Government

Municipal SOEs State SOEs

Figure 1. Types of Public Land in HCMC

Furthermore, there is a possibility of increasing the land fund by taking from private land. Two
types of private land are highly appropriate to expand public land fund. Firstly, private land
that are under a fixed-term lease – these land parcels will go back to the control of the
government once its lease expires. This provides a source of land for the government’s land
fund. For example, lands which were used for industrial parks will be returned to the
government when its lease expires. In some cases, these industrial parks were placed in urban
sub-centres such as Nha Be, which is becoming more residential rather than industrial, hence
making them increasingly attractive to private residential or retail property developers. Public
land sitting in such prime real estate will be highly valuable for the government to use LVC
techniques on.

Secondly, the government can exercise eminent domain on agricultural land and convert said
land to non-agricultural use. Agricultural land is much cheaper than non-agricultural land, thus
the costs of acquiring such a land is lower. Once converted, it will be legal for private
developers to use the land for its residential or commercial projects, and this increases the value
of the land. Furthermore, should the government build more basic infrastructure on the newly
converted land, the price of the land will then increase exponentially. However, land
acquisition is a highly political and technically difficult process. The government has planned
to acquire more than 7000 ha of land in the year 201716, thus it is important to heed advice
from scholars 17 – which is to acquire land in sparsely populated places, keep lines of
communication open, and cap compensation prices and “indexing them to publicly available
economic measures like GDP plus inflation”18.

In summary, the HCMC government can increase their land fund judiciously, while exploiting
the current parcels of land under their control. The following two mechanisms – land auctions
and LFI are key LVC techniques HCMC can apply to their public land.

3.1.1 Land Auctions of Public Un-Serviced Land

As its name suggests, this refers to the act of selling LURs of public land via an open auction.
Using proceeds from the auctions, the HCMC government can redirect funds to infrastructure

16
"Hcm City to Reclaim Land of 880 Projects," VietNamNet 2016.
17
Ngo and Huynh, Urban Development through Infrastructure Land-Based Financing: Cases in Ho Chi Minh City
18
Ibid.

6
around the area or to other public investments. One key application of land sales was during
the construction of Nguyen Huu Tho19 road (see Box 1).

▪ Arguably provides the most ▪ Requires fiscal discipline to

revenue for the government redirect budget into the
▪ Could be used to finance capex development of infrastructure
and O&M costs ▪ Requires time and technical
▪ Increases transparency of city’s expertise to implement properly

Weaknesses
land asset management
Strengths

▪ Increases government’s control

of urban planning
Opportunities

▪ Possible capitalise on current ▪ Easily corruptible if not done

public land and newly converted properly

Threats
land ▪ Encourages unnecessary land
acquisition

BOX 1: Land Auctions in Vietnam

Infrastructure: 7 km road in the Nguyen Huu Tho Street

Timeline: 2001 -2007

Financing Technique:
The central government allowed HCMC’s people’s council to acquire land from the people
staying within the affected area. After the land acquisition process, which took around 4
years, the now-public land was auctioned off for a total of VND 1600 billion for all the land
parcels – which is a handsome profit compared to the VND 105 billion it took to acquire
land in the first place. Land was auctioned off to a Korean developer GS E&C who could
sell off assets in the form of land use rights to locals. This marks the first time in Vietnamese
history where a foreign developer was allowed to sell houses to the locals.

Key lesson:
Low prices of the land acquired was critical to success of project. The compensation and
valuation of land was done in 1999- 2000, when land prices were low while the auctions
took place in 2008-2009 when prices were at its peak. Hence, this method cannot be
replicated as land prices in HCMC are now much higher than before and land acquisition
would be a much more expensive process.

19
Thanh NGUYEN, "Diversifying Capital Sources for Urban Infrastructure Investment: Land-Based Financing
in Transportation Development in Ho Chi Minh City."

7
Strengths
Compared to the other models, open and competitive bidding for land empirically provides the
highest revenue for the local government. The process awards the LUR to the highest bidder,
hence the valuation of the land will be a more accurate reflection of market demand as
compared to if the LUR was just allocated to a private developer for a negotiated cost. In cases
with high urban growth, thus more demand from private developers, these auctions will be able
to fetch high prices thus generate a large revenue for the local government. In Mumbai, for
example, the local agency in charge of land sales managed to raise 5 times of the municipal
infrastructure budget20. This means that land sales can possibly, not only go into infrastructure
financing but other much needed public investment as well.

On a similar note, as revenue generated from this mechanism is high, the funds can finance
both capex and O&M costs of infrastructure. This will be important as infrastructure
maintenance costs are often high and user fees might not be a sufficient source of revenue. This
scenario has played out in the BRT projects in HCMC where user fees were insufficient to
cover the operation of the bus lines 21 , and government subsidies were needed to keep the
network running.

This method is also one of the most transparent as the bidding process would make information
about the land revenues public. This way, the public will have access to it and be able to hold
the city’s government accountable.

Public auctions increase the city’s urban planning control in two ways. Firstly, when selling
LUR, the government can specify the infrastructure or type of building they want on the land.
This way, the city can control the speed and type of development. Secondly, the increased
revenue from land sales would allow the government to invest in infrastructure without the
need to consult or borrow from private actors or foreign entities. Broadly speaking, public
auctions would expand the city’s ability to control urban development according to their own
plans.

Weaknesses
This method requires fiscal discipline by different agencies to direct the money to key projects
rather than to waste it on administrative processes or other non-priority projects. This is because
revenue from the land sales might not go to the agency in charge of infrastructure development.
This could lead to some inter-agency competition22 over who gets a cut of the revenue and how
it should be used. Hence, this method requires fiscal discipline by agencies to plan and execute
the allocation of the revenue from land sales to ensure that funds are, in fact, directed towards
infrastructure development.

Auctions, especially open auctions, require specialised technical expertise to carry out and
incur higher transactions costs than private negotiations. The bidding process is often elaborate

20
Peterson, Unlocking Land Values To Finance Urban Infrastructure.
21
"International Development Association Project Appraisal Documenton Aproposed Credit in the Amount of
Sdr 88.2million (Us$124.0million) to the Socialist Republic of Vietnamfor the Ho Chi Minh City Green Transport
Development Project," (World Bank 2015).
22
Peterson, Unlocking Land Values To Finance Urban Infrastructure.

8
and complex. Care must be taken at every juncture, from the first call for bidders to the last
stage of awarding the tender, to ensure all information is available to potential bidders at the
same time. Hence, trained manpower with technical experience are needed to put in the hours
to properly reap the benefits of this mechanism.

Opportunities
As mentioned, while HCMC does not have a wealth of public land, they can exploit the current
land they have or acquire more land to sell. As more leases expire, privately held land that was
issued under a fixed lease will be returned to the government. These areas are usually industrial
or agricultural land. There is a huge opportunity to sell publicly-held land in up and coming
sub-centres and satellite towns. For example, Hoc Mon and Cu Chi are areas where expansive
agricultural land can be converted to urbanise these new urban sub-centre (as specified in
HCMC proposed poly-centric land plan).

Threats
Land auctions could be corrupted unless they are carried out in a transparent and fair manner.
Given that land is a valuable asset, there would be motivation for private bidders to go through
illegal means to get land at a lower price. Lessons from China’s experience shows that the
choice of the auction type can encourage corruption23, thus it is important to implement the
right model of auction effectively to overcome the threat of corruption.

As this method will fetch high prices, public officials might be tempted to expropriate more
land. Yet, it is vital to highlight that land acquisition is complex and should only be undertaken
when necessary and the land conditions are appropriate. While the new Land Law in 2013 24
has clarified the conditions by which the local government can recover land from the public,
the problems met during the Thu Thiem land acquisition process is a case-in-point to warn
public officials against exercising eminent domain haphazardly.

3.1.2 Public Land for Infrastructure (Build-Transfer Model)

Land-for-infrastructure refers to a financing technique where the state provides land to
developers for free in exchange for infrastructure to be built on it. Since the 1990s, this has
been used for many Build-Transfer projects in HCMC25, which is the city’s preferred Public-
Private Partnership (PPP) model; one of which is the Binh Loi- Nhat Son Thant Outer Ring
Road project (see box 2).

23
Qinghua Zhang (Peking) Hongbin Cai (Peking) J. Vernon Henderson (LSE), "A Choice of Auction Type Allows
for Corruption to Persist in Chinese Land Sales | Microeconomic Insights," (2016).
24
"Land Law."
25
Musil and Perset, Financing Transport Infrastructures In Ho Chi Minh City (Vietnam) Tools, Innovations And
Challenges.

9
 ▪ Transfers construction risks to ▪ Reduces public sector decision-
the Private Sector making power in Urban
▪ Capitalises on strengths of the Planning

Weaknesses
Public and Private Sector26 ▪ Unable to finance O&M costs
Strengths

▪ Requires zero capex from the

government

▪ Allows public to gain from land ▪ Increases the risk of non-viable

value increases caused by projects27
private investment ▪ Practical experiences show cost
savings for government is
qualified28
▪ Increased risk of undervaluation
of land
Opportunities

▪ Easily corruptible due to non-

transparent nature29
Threats

▪ Encourages unnecessary land

acquisition (See Land Auctions)

26
Edward R Yescombe, Public-Private Partnerships: Principles of Policy and Finance (Butterworth-Heinemann,
2011).
27
Thanh Xuan Nguyen and David Dapice, Vietnam's Infrastructure Constraints (United Nations Development
Programme, 2009).
28
Dinh Trong Thang Tran Kim Chung, Pham Thien Hoang, Nguyen Thi Huy, "Addressing the Bottlenecks:
Towards an Effective Mechanism for Financing Infrastructure," (CIEM: VNEP, 2010).
29
Nguyen and Dapice, Vietnam's Infrastructure Constraints.

10
 BOX 2: Land for Infrastructure in Vietnam

Infrastructure: 13.7km road in the Binh Loi -Nhat Son Thant Outer Ring Road Project

Timeline: 2008 - 2016

Financing Technique:
A Korean firm GSE&C offered to construct the road in B-T contract in 2008 when a
previous private entity pulled out in 2004. In exchange for the construction, the HCMC local
government would provide the Korean developer with five parcels of land.

Key lesson:
Failure to incentivise private developer through land compensation proved to be a
costly mistake: As the land that was given to the developer was not close to the road they
were constructing, and thus had no value gain from the improved infrastructure, the
developers had no incentives to build the road on time. As they had already been
compensated random plots of land around HCMC, they were in the “position to blame the
city’s government for delays and demand compensations for increased costs by
subcontractors” (Huynh and Ngo, 2010).

Strengths
In typical Build-Transfer projects, the private party who receives land in exchange for
infrastructure is meant to complete the construction and bear its associated risks of delays or
extra costs incurred during this phase. This means significant risk transfer compared to the
other models that rely on the national budget to build necessary infrastructure. However, the
actual risk transfer cannot be overstated. In some projects, the government might share the
costs of overruns too as they cannot afford for the project to delayed.

On key theoretical strength of the PPP is that it leverages the strengths of the public and private
sector in a collaborative manner. The private sector contributes efficient project management
skills, technical experience, and innovation. On the other hand, the public sector will handle
land clearance issues, a domain they are familiar with. This way, each party handles the areas
they are best at. In doing so, the collaboration can reduce delays and manage risks more
effectively, hence bringing the costs of the projects down.

In this mechanism, the government does not incur capex. This is because the capital, and its
associated interest risks, is borne by the private sector. Comparatively, the other models might
require the government to borrow first and recover costs later – which entails enlarging the
municipal debt and bearing the risks associated with borrowing. However, in practice this is
often not true as the government would invest some equity to signal political commitment to
investors (See Threats).

11
Weaknesses
Unlike the other models, this devolves most of the decision-making power away from the
government. As land is given away before the government receives assurance for the building
of its specified infrastructure, the company has no incentive to remain accountable to the state.
For example, in the case of Da Nang, the developer reneged on his word once the land was
expropriated. He claimed that “he could not recover his investment” if he built according to the
master plan, hence he appealed to the state to build a residential area for upper-middle income
earners rather than providing socio-economically diverse housing options as promised30. While
a joint-venture corporation could be created to improve trust and communication, this model
inherently provides the developer with more bargaining power once the land trade has occurred.
The implications of losing bargaining power and decision-making ability means that ultimately,
investment in infrastructure might deviate from master plans and create uneven development
and increased gentrification.

Furthermore, LFIs are often used in a Build-Transfer contract, where the ownership is
transferred to the public sector after construction, the O&M costs and risks are thus borne by
the government. One of the reasons by PPP is considered superior to direct procurement is
because it presents value for money in terms of medium and long-term savings for the
government. In this case, unless the government collect fees from the public or dips into the
municipal budget, it will be unable to pay for O&M costs of the infrastructure. The other
models here provide a direct injection of funds to the state budget and these revenues can be
used to pay for O&M costs over the years, thus this model is inferior by comparison.

Opportunities
In a PPP project, after the completion of the infrastructure installation by the private investor,
the government can keep a part of the improved land and sell it directly to the public. This way,
they can capture land value gains and keep some of the profits for future public spending. This
has been heavily used in China. The process works as follows: firstly, the private corporation
would borrow by using land as a collateral, and build a highway using that loan. After which,
some of the improved land will be transferred to the government who will then sell it to make
a profit. The land sales revenue can then be channelled into other public projects.

Threats
Given the valuable nature of land, private investors might have a perverse incentive to
underestimate costs and take on financially unviable projects. Given that the completion of the
infrastructure is key to the public, the government might be forced to inject more capital into
the project. This also means extra costs for the public in the long-run while the private sector
profiteer off the land given away.

While this model touts to save the government money as they only need to provide land for
capex, in actual fact, the implementation of many projects have been delayed and costs overrun
have to be borne by the government. This is because the government’s hand is forced to ensure
that the infrastructure project comes into fruition. Experts have problematised the current
contractual structure of the PPP projects, stating that it does not encourage land developers and
investors to properly estimate costs or incentivise developers to complete works on time.

30
Labbé and Musil, Periurban Land Redevelopment In Vietnam Under Market Socialism.

12
Furthermore, this model also runs the risk of undervaluing the land. In land swaps, private
companies might be rewarded a piece of land that might be worth more than the investment
they spend on building the infrastructure. HCMC land barter experiences has shown a constant
undervaluation of land 31. According to Musil32, the land traded for the building of the Pham
Van Dong Boulevard was undervalued by 30% when it was appraised in 2006, and eventually
traded in 2008 (See Appendix 2). Thus, in some cases, auctioning land at market rates and
using the revenue to invest in infrastructure without a PPP will be a better strategy.

Finally, the non-transparent nature of land swaps affords fertile ground for corruption. While
all other models are also susceptible to corruption as mentioned in the previous section, this
model is arguably more prone to such a threat. Unlike land auctions or the fee-collection
policies that will be discussed later, where the amount of revenue collected is for all to see, this
model does not require the governmental agency or the private companies involved to be
transparent in their dealings as most negotiations are conducted privately. Hence, it is easier
for officials to manipulate numbers to siphon off state resources.

3.2 Levying on Private Land

The following three LVC techniques have been proposed by scholars33 and most recently, been
promulgated by HCMC Finance and Investment Company (HIFC) 34 as methods for the
company to raise funds 35 . These methods will be useful to charge private developers and
landowners to ensure that the government gains from land value increases when they build
necessary infrastructure.

3.2.1 Developer Exactions and Impact Fees

This model requires the developers to “pay the way” 36 for growth by requiring the private
developers to build or pay for part of the building of infrastructure in the area they would like
to develop. Developer exactions would require the private developer to pay for internal
infrastructure at its own expense while impact fees are used to supplement the government
investment for external infrastructure. Examples of internal infrastructure include “roads,
drains and open recreational spaces” 37 while external infrastructure might include highways,
public transit systems, air or seaports. In some cases, private companies can also provide
voluntary contributions to finance infrastructure if the improvement is going to increase the
value of their assets. This method has been widely used in Chile (see Box 3).

31
"Phản Hồi Của Ubnd [Link] Về Kết Luận Của Thanh Tra Chính Phủ," Thanh Nien, 19 Feb 2011 2011.
32
Clément Musil, "Land Value Capture Mechanism: Options and Conditions for Its Implementation. The Case of
Ho Chi Minh City, Viêt-Nam.," (2015).
33
Ngo and Huynh, Urban Development through Infrastructure Land-based Financing: Cases in Ho Chi Minh City.
34
HFIC is a state-owned company that is active in facilitating financial models for road infrastructure in HCMC.
35
"Giải Pháp Vốn Cho Phát Triển Cơ Sở Hạ Tầng Gắn Với Tái Cơ Cấu Đầu Tư," 2017.
36
Peterson, Unlocking Land Values To Finance Urban Infrastructure.
37
Nopanant Tapananont et al., "A Case Study on Development Exaction for Collector Distributor Road
Construction in Bangkok," (2015).

13
 ▪ Developer exactions requires ▪ Impact fees are the most
the least technical expertise38 technically demanding to
▪ Could be used to finance capex calculate
and O&M costs ▪ Increases burden on tax
administration
▪ Requires extensive

Weaknesses
administrative reforms to
Strengths

improve public finance and

urban management institutions

▪ Possible to build key internal ▪ Increased risk of substandard

Opportunities

infrastructure in new urban construction quality

towns using developer ▪ Risk of stalled implementation

Threats
exactions due to political resistance

BOX 3: Developer Exactions in Chile

Infrastructure: 21km radial highway, and 41km combined length of small roads in
Chacabuco Province, Chile

Timeline: 1994 - 2006

Financing Technique:
Developers were developing 14 real estate projects to urbanise the agricultural land in the
area. To ensure accessibility, the local government drew up an urban transport plan and
negotiated that the private developers pay for the construction of the roads per the plan.
After some negotiations, the local government were to pay for 39% of the USD 106million
of construction costs while the private developers paid the rest. The final impact fee
“averaged about USD$1,600 per housing unit”. It is also important to note that the
government subsidised costs for low income houses as travel demand emanating from low-
income areas were excluded from the impact fee calculation.

Key lesson:
Chile’s unique traditions made it well-placed to conduct such an experiment: Chile has
a history of implement developer exactions on middle-income landowners. Furthermore,
Chilean government’s planning capacity is “well above the average developing country”,
which meant that it was more able to effectively approximate the impact of the improved
roads and impose a good fee structure.

38
Peterson, Unlocking Land Values To Finance Urban Infrastructure.

14
Strengths
Developer exactions, above all others, requires the least technical expertise. Land auctions
would require asset management skills and the planning and execution of transparent auctions.
LFI would require economic modelling and feasibility tests amongst other skills. Betterment
fees, sale of development rights, and impact fees would require technical skills to calculate the
prices and fees imposed. However, for developer exactions, it is “relatively straightforward”39
as it requires an assessment of the internal infrastructure requirements and/or negotiation with
the private sector to establish the cost-sharing structure.

In cases with constant infrastructural improvements and large developers’ interest, impact fees
and exactions can provide a huge source of income. For example, in Mumbai, it has been
“estimated that 10% of the developmental fee on all new construction could finance 40-50%
of all regional infrastructure investments” 40 over the next two decades. Key real estate
consultancies are positive about the demand for residential and office spaces41 and the growing
supply of real estate projects42 in the city is testament to the high level of investor interest. This
means that HCMC should capitalise on private investors’ interest in real estate development
now and bank on that as a source of revenue.

Weaknesses
As impact fees are collected to finance external infrastructure, the cost estimation and fee
structure is harder to calculate than exaction fees. Thus, this would be harder to implement and
requires more technical expertise.
As this is a fee-based mechanism, the department of finance must be involved to assess and
calculate tax structures. This will increase administrative burden on the department.

In the same vein, as Vietnam has no tradition of implementing such a model, extensive
bureaucratic capacity must be expended to perform trials, set up guidelines and legal norms,
before the local government is able to proficiently implement this model. The effectiveness of
this policy has not been well-documented in developing countries, which means that there
aren’t many pioneers or best practices to learn from. The most successful application of this in
a developing country has been Chile – which is known for its effective management of public
finance and growth management skills – key characteristics that many developing countries
lack. Thus, HCMC must direct resources to it.

Opportunities
As mentioned, this method is highly appropriate in areas with huge real estate projects. As new
townships are being developed in Nha Be, District 2 and other growing urban sub-centres, these
projects provide the best platform for HCMC to use developer exactions to build minor roads
within the area. This way, they can develop good infrastructure networks within new urban
areas without incurring cost to the public. Similarly, the government can also demand for

39
Peterson, Unlocking Land Values To Finance Urban Infrastructure.
40
Ibid.
41
"Vietnam Property Market Brief Q1 2017," (Jones Lang Laselle, 2017). ; "Hcmc Q4 2016 Quarterly Report
Highlights and 2017 Outlook," (CBRE Vietnam, 2016).
42
"Housing Projects Along Saigon Metro Lines Mushrooming," VietNamNet, 5 April 2017 2017; "Big M&a Deals
in the Property Market in Early 2017," VietNamNet, 3 April 2017 2017.

15
impact fees to be paid if the development benefits heavily from new metro lines and other
public transit network.

Threats
Having private developers take charge of constructing internal infrastructure at their own
expense also means that the government might lose some control over the quality of the
infrastructure built. For example, roads built using developer exactions were of “substandard
quality”43, which is detrimental for the local government as public funds must be used for O&M
costs. In another case in the USA, private developers who were given tax breaks to build
affordable housing in their development imposed a separate entrance for those living in such
units. This phenomenon of a “poor door”44 was eventually outlawed in the state of New York
but it shows how social segregation can still occur if private investors are left unadvised in the
design and construction of affordable housing units. The government must clearly define rules
and have effective institutions to ensure that public infrastructure built from exactions and
impact fees are up to standards.

As there is a tradition for developers to pay informal fees to public officials to expedite land
administrative procedures, developers will be even more resistant to pay informal fees if they
need to be charged formally again. Corrupt public officials might resist the implementation of
this formal charge as this would decrease their opportunity for rent-seeking. However, with
any institutional reforms, there will be opposing interest groups. Strong political will is needed
at the local level government to ensure that the implementing agency can fully exercise it’s
mandate to properly and efficiently pursue the collection of these fees.

3.2.2 Betterment Levies

Betterment levies refer to a one-time fee imposed on the public to capture land value gains for
the government. This allows the municipal government to charge the public and recover costs
of the infrastructure. In some cases, such as in Colombo45, betterment levies can be paid in
instalments over the course of 5 years.

43
Tapananont et al, A Case Study on Development Exaction for Collector Distributor Road Construction in
Bangkok.
44
Justin Wm. Moyer, "Nyc Bans ‘Poor Doors’ — Separate Entrances for Low-Income Tenants," The Washington
Post, 30 June 2015 2015.
45
Peterson (2009)
16
 ▪ Able to capture proportional ▪ Technically demanding as it
land value increase from requires parcel46
specific groups of landowners ▪ Public incurs capex costs and
which increases wealth equity risks as levies are usually
▪ Could be able to finance O&M collected after a project
costs ▪ Increases burden on tax
administration (See Developer

Weaknesses
Exactions)
Strengths

▪ Arguably would incur the most

public resistance

▪ Possible to explore in-kind ▪ Risk of stalled implementation

betterment levies instead of due to resistance by rich
monetary tax landowners
▪ Possible to explore tied ▪ Administrative costs could
Opportunities

betterment levies to decrease reduce levy revenues

public opposition significantly
Threats

▪ An intermediate step toward

property tax

BOX 4: Betterment Levies in Colombia

Infrastructure: 217 public works projects (mostly street, bridge, and drainage
improvements) in all parts of the city, Bogota, Colombia

Timeline: 1997 – 2007

Financing Technique:
Using a parcel-by-parcel assessment of the land, the local government was able to calculate
a proportional amount of betterment levies the locals must pay. This method paid for more
than USD 1 billion worth of municipal public works as their payments were used to finance
short-term borrowing undertaken by the government. Locals were also allowed to pay for
their levies over a five-year period to ease their financial burdens.

Key lesson:
Political will is key to implement such a policy well: India and UK have tried these
experiments but met with huge legal and political opposition. However, the Spanish legal
tradition and the urgent need for local governments in Colombia to raise funds bolstered
political will to execute this betterment levy system well. The replicability for countries
without this tradition or the urgent political will is limited.

46
Alterman.
17
Strengths
Betterment levies are used to capture land value increases from the public. Thus, this can also
be applied in areas where the land is owned by individual landowners instead of a
conglomerate of private developers. Furthermore, a parcel-by-parcel calculation of the levy
would impose a more proportional form of taxation where landowners who benefit more from
the infrastructure improvement would need to pay more, while those who do not gain as much
pay a small tax. This allows for more equitable taxation while allowing the local government
to recover the costs of the infrastructure.

In the case of Colombia, roads upgrading were paid using betterment levies. Thus, depending
on the calculations and the public’s willingness to pay, betterment levies could be used to
financing O&M costs of infrastructure. In cases where betterment levies are paid over several
years, the projected cost of maintaining and upgrading the infrastructure can be included in the
tax. The government can also time the collection of the revenue before the need to upgrade
roads. This way, they can avoid borrowing altogether.

Weakness
According to Alterman, the key to creating a sustainable and agreeable betterment levy system
is to assess the levy on a parcel by parcel basis. This requires time and resources to properly
calculate the right tax for each area of land. Thus, the levy must be high enough to cover for
the administrative costs as well – which also means a higher fee and thus, can be disagreeable
with the public.

Based on case studies in India, betterment levies are usually charged after the “government
spends money on the project”47. Hence, to finance capex costs, the government will need to
borrow from sovereign and private creditors. Borrowing for public investment comes with a
few risks and would incur interest charges. Hence, betterment levies which are usually used as
a cost-recovery mechanism, is not as cost-effective as other methods which would allow the
government to collect revenues before investing.

Imposing taxes on the public has never been a politically popular move. Due to intense
opposition from the public48, many countries have tried and failed to sustainably collect fees
based on this method. As this is the only fee-based mechanism that charges the public, gaining
public buy-in will be key. “Political will”49 to push past resistance, and manage defaults has
been identified by many scholars as the key to overcome public inertia.

Opportunities
According to Walters50, in-kind betterment levies such as land transfers can be accepted as well.
They are proven to be more popular than monetary exactions thus, the HCMC government can

47
Lawrence C Walters, "Land Value Capture in Policy and Practice," Journal of Property Tax Assessment &
Administration 10, no. 2 (2013).
48
Ibid.
49
Ibid.
50
Ibid.

18
explore that option instead. The applicability of this method to HCMC’s circumstances have
been highlighted by scholars previously as well51.

HCMC can also explore a tied betterment levy, which refers to a levy that is tied to a specific
infrastructure investment, such as a road or even a metro station. This would increase
transparency and encourage the public to pay their dues as they know what they are paying for.

A betterment levy could provide a useful buffer before the implementation of a full-fledged
property tax –an common tax instrument that HCMC is now exploring. Government agencies
administering this levy will see it as a useful training ground for future property taxes. At the
same time, this would help cultivate a norm of land value capture and, hopefully ameliorate
public resistance to property taxes in the future.

Threats
Betterment levies charge landowners. As with many other countries, landowners in Vietnam
are often rich and politically influential. There might be cases where political insiders – be they
public officials or party members – buy land near future infrastructure sites expecting land
value to increase. Thus, if a betterment levy is in place, their final profits will do down. Thus,
there will be motivation to use their political influence to stall the implementation of a levy. As
mentioned earlier, strong political will is needed at the local level government to resist the
political opposition from these influential interest groups. Furthermore, ensuring that the
collection and usage of the fees are done in a transparent manner will raise public confidence
and increase landowners’ acceptance of these charges.

3.2.3 Development Rights

Instead of selling LURs, the HCMC government can also explore selling development rights,
which allow developers to either convert the agricultural land into commercial or residential
land, or the “right to build at greater densities”52 than previously sanctioned.

▪ Could be used to finance Capex ▪ Revenues dependent on the

and O&M costs without market and timing of auction
incurring debt ▪ Requires fiscal discipline to
redirect budget into the
development of infrastructure
(See Land Auctions)
▪ Requires extensive
Weaknesses

administrative reform to
Strengths

promote coordination between

city and central bank

51
Ngo and Huynh, Urban Development through Infrastructure Land-based Financing: Cases in Ho Chi Minh City
52
Peterson, Unlocking Land Values To Finance Urban Infrastructure.

19
 ▪ Possible to use developmental ▪ Increases the risk of master
rights to prevent urban sprawl planning incompatibility
▪ Risk of stalled implementation
Opportunities

due to political resistance (See

Developer Exactions)
▪

Threats
Risk of improper
implementation due to
corruption

BOX 5: CEPACS in Brazil

Infrastructure: Agua Espraida, Sao Paola, Brazil, which included street improvements,
public open space, a bridge, and assistance for the construction of social housing

Timeline: 2001 – Ongoing

Financing Technique:
The municipal government sold development rights, called CEPACS in Brazil, a license
that allows developers to build beyond the sanctioned level of density. The number of
CEPACS sold is determined by a technical analysis that compares the existing infrastructure
and the additional works to be done. All CEPACS have the same face value but vary in sizes
proportional to the price of the land. There are 3.75 million CEPACS available for sale, of
which 2.39 million units have been sold (updated as of Feb 2013). This, including additional
air rights sales, generated a total of USD1,683 million. USD502 million was spent on public
investment, while the surplus of USD1,181million became net profit for the government.

Key lesson:
A buoyant real estate and efficient financial marketplace is needed to ensure the
profitability of such rights: Firstly, there must be market demand by private developers.
Hence, this instrument is highly appropriate in areas dealing with massive urban growth.
Land prices in such areas will be inflated, thus contractors will be incentivised to pay build
more densely to increase their profit margins. Secondly, public officials will need to have
“considerable [financial] expertise” to prepare a “favourable auction” timing of auction,
supply of units and minimum bid prices. In Brazil, the CEPACS are traded like bonds, and
like any other financial market, the transaction costs relating to the sales of CEPACS must
be done efficiently to get the most profits per unit.

Strengths
From the case in Sao Paolo, the revenues were able to cover both capex and O&M costs of the
infrastructure projects. Furthermore, as development rights are sold before the construction of
the infrastructure, it is possible for the government to collect enough revenue to finance these
public investments without taking out a loan. The benefits of doing so are three-fold. This
decreases the risks associated with borrowing, is more cost-effective as there are no interest

20
payments and would not incur opportunity costs that could be directed to other public
projects.53

Weaknesses
According to Sao Paolo’s experience, the final auction price of the development rights is very
much dependent on the market and the timing of the auctions. For example, the price of one
unit of developer’s rights differed greatly in the private auctions of 2004 (USD 550 per unit)54
and 2008 (USD 862.5 per unit). Thus, great caution must be taken by the agency in charge of
the sales of these rights to capitalise on the right moment and assess the market demand to
prevent an over-supply of these units.

This method, similar to the implementation of developer exactions and impact fees, is
completely new to Vietnam. Thus, extensive administrative reforms needs to be implemented
even before the government can execute a trial. As seen in the case of brazil, the federal bank
of Vietnam needs to work with the government of HCMC to issue and sell such rights. Given
the decentralised nature of the city’s government, it will be difficult for the bank to coordinate
with the city. Hence, there should be a form of recentralisation of power to one key authority
at the city level to prevent a haphazard coordination process.

Opportunities
This method can be used to control urban sprawl. By selling development rights at designated
growth poles, the city can attract developers to concentrate their services and facilities within
the area. This allows for cost savings as the government can “[focus] development into a few
specific locations, which minimizes sprawl, reduces the cost of providing infrastructure and
services, and promotes alternatives modes of travel”55. As seen from the case in Brazil, many
new urban redevelopment projects were financed using this method, thus HCMC can apply the
same technique to concentrate urban services in identified urban sub-centres and satellite towns.

Threats
This method might increase the risk of master-planning incompatibility as government officials
might become tempted to sell development rights even if it contravenes the master plans. Thus,
there is a need to be flexible but maintain fidelity to the masterplan when deciding where and
how many rights can be sold.

The sale and designation of development rights can be easily corruptible if not done properly.
Prior to the law on Urban Planning, which was issued in 2009 and enforced in 201056, there

53
Paulo Sandroni, G Ingram, and Yu-Hong Hong, "A New Financial Instrument of Value
Capture in São Paulo: Certificates of Additional Construction Potential," Municipal Revenues
and Land Policies. G. Ingram and Y. Hong. Cambridge MA, Lincoln Institute of Land Policy
(2010).
54
Rate of BRL 2 = USD 1
55
John P. Whalen, "“Pros” and “Cons” of Transfer of Development Rights (Tdr) Programs," (Plan Pacific Inc,
2006).
56
Shigehisa Matsumura, "Study on the Improvement of the Urban Planning System in Vietnam under a
Transitional Economy, Compared with the Approaches Taken in China," Journal of Habitat Engineering and
Design (2013).

21
was a trend of private developers “constantly requesting relevant authorities to amend detailed
plans [which stated the allowed FAR and other density measures]”. This shows how zoning
requirements are often not enforceable. Since the passing of the law, it is not clear if this trend
has been ameliorated. If zoning rules and regulations are not enforceable, it will be difficult to
implement the sales of development rights as developers will find it easier to build beyond the
stated density by renegotiating the rules rather than purchase development rights.

4. Application to Public Transport: Metro Lines

The following section will focus narrowly on public transport infrastructure, and more
specifically on the metro lines. The need for HCMC to develop its public transport
infrastructure rapidly has received much attention from both policymakers and academics.
From a business and economics perspective, experts estimate that traffic congestions in the city
cost economic stakeholders more than VND1.2bn each year. On the other hand, from a
healthcare perspective, there is a need to relieve massive intra-city traffic congestion, as HCMC
aims for a 5% decrease in traffic accidents compared to 2016. Implementing a public transit
network will help extenuate traffic concerns and mitigate the economic and healthcare
detriments mentioned. This must be done quickly as well. As the average income in Vietnam
is rising, more people are switching to cars. This translates to heavier usage of roads,
encourages urban sprawl and possibly increases the risk of gentrification. Thus, experts suggest
the need to improve public transit uptake before the city shifts towards being more car
dependent.

Public officials and academics are well aware of these concerns and have put the development
of public transportation high on the policy agenda, with particular focus on the metro lines.
According to point four of the 2013 plan, priority is placed on “[m]obilization of capital sources
for construction of one or two of the four priority subway lines (Line 1, 2, 3, 4)”. Similarly, in
an earlier key policy relating to transport – Decision 101 (2007) – the government clearly stated
that entities operating the metro lines will be “entitled [to] preferential policies”.

However, the status quo of the public transit network in HCMC does not look optimistic.
Currently, the first metro line, which was intended to open by 2015, is still under construction.
While the government estimates that public transit will occupy 25% of the transport share by
2020, experts project that number to only be “16-18%”57 with more people favoring private
transport instead.

4.1 Understanding the Status Quo

Metro projects in HCMC have received a fair share of attention as metro lines are often seen
as a key public transportation tool in key global cities. However, there are no metro lines in
HCMC yet. To apply LVC mechanisms to these projects, it is important to understand the status
quo of the land near these lines. As of now, many plots of land along the metro lines that are
being constructed (Line 1 and 2) are owned by developers (See Appendix 3 for information
about the three prioritised metro lines). This is because the private sector has been highly adept
at acquiring these prime real estate spots. As these spots are valued highly, it is not appropriate

57
Iris Leung, "Can Motorcycles and Public Transit Co-Exist in Vietnam's Transport Future?," 2016.

22
for the government acquire these pieces of land. Thus, the latter three mechanisms would be
more appropriate.

To conclude this paper, the policy recommendations will be elaborated on in the following two
subsections. Firstly, the paper will explore where and who to charge. The key recommendation
is that the distribution of land ownership should guide the government on which levy
mechanism to use. Secondly, as the mechanisms are completely new to the Vietnamese legal
system, will place considerable strain on the tax and land administration, and is prone to
political resistance, the following set of policy recommendations will focus on how to kickstart
institutional reforms.

4.2Where and who to charge?

Betterment levies should be in imposed on those who have bought land around future metro
lines to capture land value increases and financing loan repayments to the developmental banks.

In cases where private developers hold a significant piece of land near future metro station and
would like to build extensive, high-rise buildings, the local government should sell
development rights to raise revenue for future infrastructure investment.

Finally, impact fees and developer exactions, though are not commonly used to finance metro
lines, HCMC can experiment with impact fees as well. If the metro station is close to or within
the premise of a new urban town project, the city can negotiate for the developers to contribute
some funds towards the maintenance or construction of said station.

Figure 2. Where to implement fees?

23
4.3 How to kick-start institutional reforms?
Based on the SWOT analysis and an examination of the status quo, one of the key factor that
discourages the implementation of such levies and one-time charges is the potential for political
resistance. As mentioned by many public officials 58 , private developers have had massive
influence in the development of urbanisation in HCMC. Key infrastructure improvements
usually follow behind the private real estate developments and led to the rise of a phenomenon
where the “planning follows the project”59. This trend has encouraged a collusion between
private developers, speculators and corrupt public officials to stand and gain from land value
surges while the city struggles to fund infrastructure development – which is one of the drivers
of land prices. Should the city hope to properly leverage on LVC techniques to fund the metro
lines, institutional reforms must begin. In many of the case studies mentioned in this paper,
political will was key to inspire change and create a systematic and successful implementation
of each LVC technique.

1. Create a legal framework to pilot these fee-based charges in HCMC

Land-based LVC mechanisms have been pursued by many provinces in Vietnam for the past
decade. Now, public land is running low, hence the central government should create a legal
framework to allow all provinces to expand their repertoire of tools and venture into fee-based
LVC mechanisms. However, in view of the novelty of these fee-based mechanisms to Vietnam,
and possible massive private sector opposition, a gradual approach will be more feasible.

To phase in the implementation of these charges, the Prime Minister can grant HCMC the
permission, through a Decision, to experiment using these charges near future metro line sites.
Many cities, such as Hong Kong60, Nan Chang61 and New Delhi62, have successfully used a
mix of fee and land-based LVC mechanisms to build metro lines. Should HCMC do the same,
its success can be replicated in other provinces across Vietnam to create efficient public
transport networks as well.

2. Assign MAUR as implementing agency

Currently, MAUR only functions as the implementing agency of the metro projects, and thus
is not responsible for raising funds. However, MAUR, being most keenly aware of the location
of the metro stations, is the in the best position to implement these fee-based LVC techniques.
Hence, the central government should expand its function to take charge of the financing aspect
of metro lines. Working with Ho Chi Minh City Finance and Investment Company (HFIC), the
MAUR’s performance as an agency should be evaluated based on how well they are able to
source financing for these projects as well as how effective they are as an implementation
agency. This will improve current passivity and help mitigate the financing problem that
plagues current metro projects.

3. Foster political consensus to spark political will

58
Huynh, The misuse of urban planning in Ho Chi Minh City
59
Ibid.
60
Suzuki et al.
61
Ibid.
62
Walters, Land Value Capture In Policy And Practice.

24
As mentioned, political will is critical to resist the political advances of opposing interest
groups. Influential landowners, speculators, developers and corrupt officials have vested
interest in stalling the implementation of these charges. However, the pressure to reform is
rising. The optimal way for HCMC to have funds to direct their urban developmental growth,
and achieve their stated public transport targets is to find ways to increase the public budget.
Fee-based LVC techniques have been used widely across many key cities to raise public funds
and build infrastructure. HCMC People’s Committee and the People’s Council must remind all
officials at all levels of the government of the urgent need to raise funds, and the suitability of
these proposed mechanisms in order to instil political commitment to the suggested reforms.

4. Empower MAUR practically

Assigning an agency more responsibility on paper is futile if they are not empowered with the
resources to carry out their duties. The local government will need to recognise that MAUR
will require more resources to carry out their newly extended mandate. For example, when the
Nanchang Municipal government set up the Nanchang Railway Transit Group Co. Ltd.
(NRTG), the group hired real estate professionals to help manage land assets around metro
lines. Likewise, MAUR might need to hire more real estate professionals to identify, price, and
market developmental rights to private developers. However, in light of the tight municipal
budget, the city government must be judicious when they allocate more funds to MAUR.

5. Merge Transport and Urban Development master plans to improve land use planning
and zoning administration
To be able to calculate land value increases in relation to improved transport infrastructure, the
two land use plans – transport and development must be combined. This will help to better
identify key zones where land value will increase. This recommendation is not new and have
been mentioned by developmental agencies such as the World Bank63 and an imperative for
the HCMC government to take, should they hope to sustainably develop urban transport
infrastructure by using the TOD principles as stated in their poly-centric city masterplan .

6. Improve technical expertise in calculating and estimating land value to capture

The calculation of the how much to charge depends on the estimated price of land value and
people’s ability to pay. If the land value charge is too small, it will have little fiscal impact,
while if it’s too large, the risk of default is higher. Thus, public officials from MAUR, the tax
and finance departments will have to learn from past global experiences or consult external
advisors to equip themselves with the technical skills to calculate the appropriate charges.

7. Develop a regulatory framework to allow all provinces to implement fee-based LVC

techniques
In due time, to scale up the implementation of these charges to other provinces, there needs
to be law in place to deal with matters of arbitration and fairness. The laws should guide
officials on when is fair to use exact such fees, how much is fair, and how to deal with
defaults, amongst other procedures. These mechanisms will need to be sanctified by the
court before applying it on a mass-scale.

63
World Bank; Ministry of Planning and Investment of Vietnam, "Vietnam 2035," (2016).

25
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Appendix
Appendix 1

Source: Luong Minh Phuoc, UCCI presentation: “Transit-Oriented Development in Ho Chi

Minh City : Opportunities & Challenges”

Appendix 2

Source: Clement Musil, Land Value Capture Mechanism: Options And Conditions For Its
Implementation

28
Appendix 3
The table below summarizes the ongoing metro projects the HCMC government is focusing up
to 2020. The plan includes six metro lines by 2020, however, line 1, 2 and 5 are prioritised.

Project Financers User Charges Timeline

Metro Line 1 JICA – 2.2bil ~ VND 4000 Construction started in

VN-G – 290mil for fare64 2012, Open by 2020
Metro Line 2 ADB – 450mil Construction started in
KfW – 313mil 2015,
EIB – 195mil
VN-G – 326.5mil Open by 2020
Metro Line 5 EIB & GRB – 381mil Site Clearance by 2019
ESP-G – 299mil
ADB – 517mil Open by 2025
VN-G – 504mil 65

Note: JICA (Japanese International Cooperation Agency), ADB (Asian Development Bank),
KfW (Kreditanstalt für Wiederaufbau-German Development Bank), European Investment
Bank (EIB), German Reconstruction Bank(GRB), Asian Development Bank (ADB),
Source: Updated by Author, Adapted from Musil (2015)

64
"Financial Analysis: Ho Chi Minh City Urban Mass Rapid Transit Line 2 Investment
Program," (Asian Developmental Bank, 2010).
65
Toan Dao, "Going Underground: Saigon Plans $250 Million Metro Link to Tan Son Nhat
Airport," Vn Express, 14 November 2016 2016.
29
Appendix 4
Actionable Steps Agency in Charge Y1H1 Y1H2 Y2H1 Y2H2 Y3H1 Y3H2 Y4H1 Y4H2 Y5>
1. Create a legal framework allow HCMC Central
and MAUR to pilot mechanisms Committee (CC)
2. Merge Transport and Urban CC and relevant
Development master plans agencies
3. Extend and clarify mandate of MAUR as CC
the implementing agency of fee-based
LVC techniques
4. Identify zones near future metro, bus and MAUR
monorail lines
5. Segmentise identified zones into (See MAUR
Figure 1 above)
a. Areas where a significant portion
of the land is held by multiple
private owners
b. Areas where a significant portion
is owned by private developers
c. Areas with New Towns
6. Calculate fees and clearly define the MAUR, tax and
allocation of revenue to each finance
participating agency departments
7. Introduce LVC technique HCMC
Government
8. Collection of fees District Tax
Authority
9. Allocate revenues according to pre-set MAUR and HFIC
allocation
10. Develop a regulatory framework to CC
allow all provinces to implement fee-
based LVC techniques
Source: Author’s work
30