Laos courts foreigners

PUBLISHED : Wednesday, 12 January, 1994, 12:00am
UPDATED : Wednesday, 12 January, 1994, 12:00am

COMMUNIST Laos is taking tentative steps towards liberalising its property sector as developers look at some of the cheapest land holdings in Asia.

The country's National Assembly is due to approve new investment laws aimed at luring more foreign capital in February. And real estate taxes have been introduced to free the supply of land for development in a positive move towards a free market in realestate.

Vientiane, a backward city of 200,000, has few buildings of international standard, and is expected to need housing, schools, leisure facilities, factories and offices for foreign investors.

''The investment code is already equal to, or better, than the best being offered in Indochina. I think we are going to see quite steady development over the next year or two,'' said a diplomat based in Vientiane.

Changes planned to the investment law will allow longer land leases, currently limited to 20 years, thus encouraging bigger property developments.

There are no apparent plans to allow direct ownership of land, which remains under the control of the state and a handful of Laotian nationals with strong political connections.

But the proposed land taxes will make more land available, by requiring owners to pay for the right to leave their property idle.

Taxes are decided on the basis of land productivity, similar to Western valuations. Real estate defined as being suitable for the development of housing, industry or services attracts the highest rate.

''The taxes are high by Laotian standards and will be passed on to anyone leasing land. But land prices are well below provincial Thai standards, for instance, and they will stay competitive for some years to come,'' said the diplomat.

With the short land leases currently available, developers have mostly confined themselves to small hotel projects, with a modest US$106 million (HK$826 million) invested in the tourism sector since Laos opened to foreign capital in 1988.

Six hotel projects are underway, mostly involving restorations which will add about 1,000 rooms in Vientiane by 1995, and several hundred in the provinces.

In the provinces, a Thai entrepreneur is building a 300-room hotel in the southern resort of Champasak, and two small hotels have been completed in Savannakhet, close to the main overland route between Thailand and Vietnam.

Analysts say the first wave of projects outside hotels may involve industrial estate developers, catering for foreign firms with Indochina wine marketing links, Thailand's Ban Chang Croup, which is involved in a US$500-million industrial park in Vietnam, is studying plans for Laos' first factory site, but is understood to be waiting for investment laws to be clarified.

With the expatriate business community still small, only a handful of office projects have started, and some developers have opted to include a limited number of offices in hotel buildings instead.

Financing is harder to find for offices, with project consortiums unable to use land leases as loan guarantees.

Boun Hang Sengehandavong, deputy director of Laos' investment committee, said foreign developers had signed joint ventures with privatised state enterprises only to find that financial backing was hard to obtain.

In housing, hundreds of foreign workers are expected to be involved in building several hydro-electric schemes on the Mekong River, which will take at least a decade to complete.

While the housing market is virtually non-existent, restrained by low purchasing power and a net per capita income of US$200 per year, it is expected to take off in the next few years.

Laotian exiles returning from the US, France and Australia are the biggest direct real estate investors, with most money going into renovating ageing villas for housing and offices.