Laws on off-the-plan real estate business in Vietnam

According to the above definition, off-the-plan real estate business in Vietnam involves organizations, families, and individuals who invest capital to carry out construction activities, purchase, and receive transfers for sale; lease, lease-purchase future real estate for profit-seeking purposes.

Currently, in Vietnam, the real estate market scale is not as large as other countries in the region, but more than 70% of real estate investment capital comes from bank loans, and 65% of loan secured assets are real estate. Currently, the total real estate debt of Vietnam is around VND 342 trillion (approximately USD 16 billion), accounting for 8% of the total debt of the banking system. Real estate business is a highly advantageous type of business but also entails substantial risks and requires a significant amount of capital. To motivate the development of the real estate business, the State needs to facilitate opportunities for investors to mobilize capital for business and real estate transactions. Future real estate transactions are particularly important and common in real estate dealings because they provide capital advantages for both investors and customers. The State has many regulations to facilitate easy, convenient, and safe buying, selling, leasing, and lease-purchasing of future real estate for both investors and customers.

Regulations in the Law on Real Estate Business 2014 about off-the-plan real estate business in Vietnam

About business subjects:

The Law on Real Estate Business 2014 has expanded and clarified more specifically than before about the rights to off-the-plan real estate business. Real estate project investors have the right to sell, lease, and lease-purchase houses, and construction works not only available but also future ones. In terms of sales transactions, the Law on Real Estate Business 2014 mainly inherits the provisions of the Law on Real Estate Business 2006. The rental transactions for future houses and construction works are only generally regulated in Article 54 without specific stipulations. Particularly, the lease-purchase transactions for future houses and construction works have been expanded to encourage the development of this type of transaction. The law has also extended for families and individuals to do the off-the-plan real estate business but must pay income tax as prescribed, to diversify real estate goods, meet the increasing economic and social demands of the people, and maximize social resources to promote private investment in housing.

Types of real estate put into business:

The law does not regulate the business of land use rights formed in the future. Many types of houses and construction works formed in the future are put into business, such as homestead land houses which account for the majority of transactions in the market. Homestead land houses come in many types but are generally divided into two main types: commercial homestead land houses and social housing. Commercial homestead land houses are residential properties built and sold or leased by organizations and individuals from various economic sectors according to market needs and mechanisms. Social housing is residential properties built by the State or enterprises from various economic sectors for low-income urban groups to buy and lease-purchase (mainly to implement social policies); this type of housing can only be sold according to the decision of the competent regulatory agency.

Similarly, future construction projects also come in various types: construction projects in industrial parks, high-tech zones, economic zones, and commercial, service, tourism business projects; land for constructing non-agricultural production facilities outside industrial parks, industrial clusters, export processing zones; cemetery land, graveyard land, etc. Investors proceed with new investments or renovations and repairs for houses and construction projects on land and conduct off-the-plan real estate business transactions according to legal regulations for profit-seeking purposes.

Conditions for future real estate put into business:

Article 9 of the Law on Real Estate Business 2014 inherits regulations stating conditions: no disputes over real estate, not being seized for execution assurance. Additional and amended conditions include having documents on land use rights, project dossier, construction drawing design approved by competent authorities, construction permit (if required), documents on technical infrastructure completion acceptance according to the project progress; for future condominiums, mixed-use buildings intended for residential purposes, a foundation completion acceptance record is required; before selling or lease-purchasing future housing, the investor must notify the provincial house management agency that the housing meets the conditions for sale or lease-purchase.

To address the issue of many investors illegally mobilizing capital, seizing customer funds, the Law on Real Estate Business 2014 and the Law on Housing 2014 have strictly regulated capital mobilization and product sales by investors in projects. For commercial housing, investors mobilize capital from advance payments for buying, lease-purchasing, or leasing houses under a “future housing sale, lease-purchase contract.” Signing capital mobilization contracts for commercial housing development must comply with regulations allowing participants to share profits (in cash or shares) proportionate to their contributed capital as agreed upon in the contract; investors are not allowed to use capital mobilization forms to share housing products or prioritize registration, deposits, purchasing rights for housing products in the project for the funding parties, except in cases of contributing capital to establish new legal entities to be assigned as investors by the State to build housing projects. Article 68 of the Law on Housing also stipulates that non-compliant capital mobilization forms and conditions for each housing type under the legal housing regulations shall have no legal effect. Therefore, when entering into real estate business contracts, both investors and customers must comply with civil and housing laws. The contract must meet proper form requirements to avoid being declared void.

Guarantee in the sale, lease-purchase of future housing:

Unlike before, Article 56 of the Law on Real Estate Business 2014 added regulations requiring real estate project investors to obtain guarantees from qualified commercial banks for their financial obligations to customers when failing to hand over houses as agreed. If the investor does not hand over the house per the schedule, and the buyer or lease-purchaser requests, the guaranteeing party is responsible for refunding the advance payments and other amounts according to the house sale, lease-purchase contract and the signed guarantee contract. Guarantee regulations aim to protect customer rights and investment safety, preventing investors from engaging in projects without sufficient capital, misusing mobilized funds, delaying house handovers, or not investing in projects as agreed, causing damage to customers.

The law also clarifies and details payment terms in future real estate sales and lease-purchase transactions. Payments are made multiple times, the first installment should not exceed 30% of the contract value, subsequent installments must align with the construction progress but should not exceed 70% of the contract value before house or construction work delivery; for foreign-invested enterprises, the total should not exceed 50% of the contract value.

The real estate business law does not expressly stipulate payment terms in lease-purchasing house or construction work transactions, only that the lease-purchasing party makes an advance payment and the remaining amount is converted into rent. After fully paying the lease-purchase amount, the lease-purchasing party becomes the owner. However, the Law on Housing provides more specific stipulations, requiring lease-purchasers to prepay 20% of the house value, unless they can afford up to 50% of the lease-purchase house value; the remaining amount is calculated into monthly rent for a certain period. After fully paying the rent, the lease-purchasing party will own the house.

Transfer of future house sale, lease-purchase contracts:

The Law on Real Estate Business 2014 adds the form of signing lease-purchase contracts for future real estate. Buyers and lease-purchasers of future housing can transfer their sale, lease-purchase contracts to others.

Some limitations and solutions

Although the Law on Real Estate Business 2014 and related legal documents have made many amendments and additions, resolving many previous limitations, some practical issues still need further research for improvement.

First, in practice, even though the Law on Real Estate Business 2014 and Law on Housing 2014 have specific regulations on investor capital mobilization and product sales in real estate projects, some investors still find ways to “circumvent the law” to mobilize capital. Despite not meeting conditions, many investors have signed “Investment Cooperation Agreement for Apartment Purchase,” specifying the investment value as equivalent to 30% of the apartment value, with payment terms as a house sale contract. The cause of this is the lack of a deposit contract regulation in the Law on Real Estate Business. Two types of circumvention include “deposit registration” agreements to secure the house purchase contract when building the project and “sales promise” agreements, essentially a form of deposit for conditional transactions to commit to signing a house sale contract under Article 125 of the Civil Code "Conditional Civil Transactions," often accompanied by a deposit condition. Another form is signing capital mobilization contracts for project development in exchange for products. Even for social housing, there are instances of signing capital contribution contracts, receiving deposit payments, promising to buy and sell, then collecting price differences like commercial housing, contradicting social policy nature.

To address this issue, the responsibilities of investors must be clearly identified, and strict measures are needed against illegal business activities, especially for social housing, to protect the general customer rights, particularly low-income individuals.

Second, regarding bank guarantees, many projects selling future real estate lack official bank guarantees. Some investors attribute this to difficulties in financial capacity assessment and collateral evaluation. Investors often use the ongoing project as collateral for prior loans, requiring additional assets for new collateral. Moreover, bank guarantees for future real estate projects entail significant risks, with banks taking substantial responsibility while earning modest fees, leading to reluctance in accepting guarantees.

Additionally, there are legal conflicts. According to Circular No. 07/2015/TT-NHNN issued by the State Bank of Vietnam, effective from August 9, 2015, banks only guarantee after the enterprise and buyer sign the sale contract. Bank guarantees require specific subjects; apart from the seller, the bank must identify the guarantee beneficiary – the buyer, complicating the guarantee process. Therefore, legal provisions need to be unified, strictly implementing guarantee requirements for house sales to protect customer rights and prevent enterprises with insufficient capacities from misusing customer funds. However, replacing the requirement for bank guarantees before selling or lease-purchasing future assets with the requirement to sign guarantee contracts immediately after entering future house sale, lease-purchase contracts might be considered.

Third, the State needs to particularly encourage investment in social housing and housing for low-income groups to address social welfare and minimal housing needs, fostering community welfare. Real estate business and transactions involving purchasing, leasing, and lease-purchasing social and low-income housing need special support and incentives from the State, local authorities, organizations, enterprises, and individuals. Direct incentives in management mechanisms, simplified administrative procedures, and financial support for social policy groups to access housing should be provided, creating conditions for them to buy houses on installment payments over a long period.

Fourth, sanctions for handling legal violations in off-the-plan real estate business are insufficient and deterrence weak. According to Decree 139/2017/ND-CP from the Government of Vietnam, the highest administrative fine for prohibited actions in construction, real estate business, housing development activities is VND 300 million. Compared to the profits from exploiting legal loopholes in large-scale real estate projects worth hundreds or thousands of billions of dong, such a fine is too low; many investors deliberately violate laws, accept fines, significantly affecting other parties' rights. Legal sanctions must not only punish, mitigate consequences but also prevent and deter violations. Hence, legal sanctions for violations in future house and construction sales must be stronger and more deterrent.

To set reasonable fines for violations, the consequences must be considered; fines should be proportional to the value of future houses or construction works involved in the violated contract; significantly higher fines for illegal capital mobilization or fund misuse, including mobilized money or customer prepayments in future real estate transactions.

Fifth, conducting and transacting off-the-plan real estate business requires significant and stable long-term capital (short-term capital cannot be used). Thus, solutions are needed to foster relationships between finance and real estate markets for long-term capital mobilization. Financial policies for long-term real estate investment should be improved: streamlining state financial management agencies; developing financial institutions, promoting financial intermediaries, diversifying real estate financial products; establishing real estate investment trusts, real estate investment funds, housing development funds, and house saving funds.

Sixth, current off-the-plan real estate business transactions still exhibit unequal rights and obligations between real estate business enterprises and customers, harming customer interests and business environment. Therefore, strengthening inspection and supervision of business subjects, transaction conditions, real estate goods for transactions, and sample contracts when investors sign with customers; particularly enhancing information channels for customers engaging in transactions.

Source: Toaantapchi.vn

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