Selling Hanoi's heritage: An economist's viewpoint

May 2, 2022 | 05:00 pm PT
Martin Rama Economist
Recent news about the sale of 600 French villas by the Hanoi People's Committee triggered a flurry of exchanges in social media. Many of the comments were on whether these villas would be better protected by the government or by private owners. Many others were about the fact that these villas sit on "golden land" and their sale could be a source of unjustified profits.

The sudden public interest in this topic provides a good opportunity to discuss the potential and pitfalls of divesting state-owned assets with heritage value. Two thirds of the 600 villas have already been sold already, and it is unlikely that the terms to handle the sale of the other third will change much. But there could be important insights from this experience for the future.

Such insights become particularly important as several ministries may be moving out of central Hanoi in the coming years. These ministries occupy some of the most magnificent public buildings from the colonial period. It would be unfortunate if the handover of such buildings to private investors put the city’s heritage at risk, or if it led to illegitimate profits.

I want to reflect on the sale of heritage assets as someone who deeply loves Hanoi and wants to contribute to the preservation of its unique character. But I also want to comment on it as an economist. After all, the sale of heritage assets is essentially a privatization – a relatively well-understood instrument in development policy.

Two decades ago, when I was the Lead Economist of the World Bank in Vietnam, I had the honor of work with the government on the equitization of thousands of state-owned enterprises. Vietnam’s experience back then is relevant in this context.

The privatization of French villas and public buildings by the local government can certainly contribute to the preservation of the city’s heritage, at no cost to the local government. Constrained budgets have prevented the authorities from taking proper care of these assets. Some of them are by now in a bad state of disrepair. If nothing is done to preserve them, they could end up crumbling.

However, there have been numerous cases in which private investors have deliberately destroyed assets with heritage value, to make a profit. An obvious example is the beautiful French villa in which Tran Huy Dung, the first chairman of independent Hanoi used to live on Ly Thai To street.

A century-old villa in Hanoi, now used as home by many residents, is dilapidated. Photo by VnExpress

A century-old villa in Hanoi, now used as home by many residents, is dilapidated. Photo by VnExpress

When state-owned enterprises started being equitized, two decades ago, their efficiency gradually increased. Products with better quality led to higher profits, benefiting both the new private owners and their customers. But when a French villa or a public building is demolished, the investor makes a large profit whereas the character of the city is damaged. Instead of a win-win situation there is a win-lose outcome.

Therefore, the privatization of assets with heritage value should be accompanied by stringent regulations on what the investor can do with them. In the case of the 600 villas, local authorities were right to mandate that whoever demolished or damaged one of these villas needed to rebuild an identical one in its place.

However, it is important to make sure that this regulation can be implemented in practice. Applying fines may not be enough for investors to abide by it, because the profits from demolition could be very large. There should also be a provision that any new unauthorized buildings will be demolished at the new owner’s expense. And the obligation to preserve a heritage asset should be transferred to its new owner every time the asset is sold again.

A second important issue is how to determine the price at which a heritage asset should be sold. One of the main pitfalls of privatization processes around the world has been the sale of state assets at cheap prices. In some countries, such discount sales have cemented the fortunes of oligarchs, and have ended eroding public confidence in the government.

In the case of the 600 villas, sales have been based on a government resolution that sets a price per square meter for different parts of the city. This was a way to facilitate their purchase by their residents, who were typically not rich. Indeed, most of these French villas had been used to address a housing crisis at independence, and often an entire family ended up living in each room.

However, with the administrative price being often much lower than the market price, this approach might have resulted in significant profits for the residents of the villas. Generosity with revolutionary families who committed sacrifices for the nation is understandable. But it is more questionable when it benefits private investors.

Public auctions are a more appropriate pricing mechanism for future sales than figures from administrative lists. A fully transparent process can be put in place through which restrictions such as the obligation to preserve the original architecture are clear, and potential investors can bid for the asset knowing in full knowledge of what they can do with the asset.

Typically, there is a pre-qualification of bidders, to make sure that they have the financial resources and the technical expertise to take proper care of the asset. Among pre-qualified investors, the one offering the highest bid wins the auction.

This mechanism is widely used by the government of Vietnam to commission infrastructure works, to purchase medicines, or to procure office supplies. Extending it to the sale of assets with heritage value should be relatively straightforward.

Effective regulations on the use of heritage assets, and transparent auctions to divest them, may seem matters of detail. But as an economist, I know that details make all the difference between privatization success and failure. And as someone who deeply loves Hanoi, I can only hope that the privatization of heritage assets will be done in a way that helps preserve the city’s unique character.

*Martin Rama is a consultant to the presidency of the World Bank and a project director at the Center for Sustainable Urban Development under the Vietnamese Academy of Social Sciences. The opinions expressed are his own.

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