Conditions for a real estate investment fund to invest in the real estate in Vietnam

Conditions for a real estate investment fund to invest in the real estate in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. General provisions on real estate investment funds in Vietnam

Real estate investment funds are not allowed to perform construction activities, implement and develop real estate projects.

Development of real estate projects includes one or some of the following operations:

- Attend auctions of land use rights and bidding for implementing immovable property projects;

- Propose projects to competent authorities for granting construction permits;

- Implement technical infrastructure construction projects, building works and housing works of 1/500-scale detailed planning approved by competent authorities, including detailed design tasks; attend bidding and selection of building contractors; perform and supervise construction activities, etc. as prescribed in the Law on real estate business.

(Article 50 of Circular 98/2020/TT-BTC)

2. Conditions for a real estate investment fund to invest in the real estate in Vietnam

According to Clause 4, Article 51 of Circular 98/2020/TT-BTC, a real estate investment fund is allowed to invest in the real estate meeting the following requirements:

- The real estate is traded in accordance with the Law on real estate business.

According to Article 5 of the Law on Real Estate Business 2014, Types of real estate to be put on the market include:

+ Existing buildings of organizations or individuals;

+ Off-the-plan buildings of organizations or individuals;

+ Buildings which are public properties to be put on the market permitted by competent agencies;

+ Types of lands whose land-use rights are permitted to be transferred (hereinafter referred to as land), leased, sublet as prescribed in law on land.

The real estate must be located in Vietnam and is invested for the purpose of lease or operation to earn stable profits.

Types of invested real estate must be conformable with investment objectives and policies stated in the fund's charter and prospectus;

- The invested real estate is finished house or building as prescribed in the Law on construction. The fund may invest in real estate items which are under construction if they meet the following requirements:

+ The real estate is not the vacant land as prescribed in the Law on real estate business and the Law on land;

+ The construction project has been being implemented according to the approved progress by the time of capital contribution by the fund;

+ There are valid contracts signed with potential clients to ensure that the real estate may be sold, put into use or leased immediately after it is finished;

+ Total value of real estate items under construction shall not exceed 10% of total value of the fund’s assets.

3. Regulations on structure of the investment portfolio of a real estate investment fund in Vietnam

According to Clause 4, Article 51 of Circular 98/2020/TT-BTC, structure of the investment portfolio of a real estate investment fund in Vietnam must meet the following requirements:

- At least 65% of the fund’s NAV is invested in real estate in Vietnam to serve the purpose of lease or operation to earn stable profits as prescribed in Section 2; securities issued by real estate enterprises at least 65% of revenue of which comes from ownership and trade in real estate according to their latest annual financial statements (hereinafter referred to as “real estate enterprises”).

If the fund only invests in securities issued by real estate enterprises, it must invest in securities of at least 03 issuers;

- Not more than 35% of the fund’s NAV is invested in the assets specified in Point a Clause 2 of Article 51 of Circular 98/2020/TT-BTC, exclusive of investments in securities issued by real estate enterprises. Investment in these assets shall ensure the following limits:

+ Do not invest in more than 10% of total outstanding securities of an issuer or total outstanding fund certificates of a public fund managed by another fund management company, except Government’s debt instruments;

+ Do not invest more than 5% of total value of the fund’s assets in securities and other assets (if any) specified in Points a, b Clause 2 of Article 24 of Circular 98/2020/TT-BTC of an issuer, or fund certificates of a public fund managed by another fund management company, except Government’s debt instruments;

+ Do not invest more than 10% of total value of the fund’s assets in securities issued by companies in the same group of: parent company-subsidiaries; companies holding more than 35% of each other’s shares/stakes; subsidiaries of the same parent company;

+ Do not invest more than 10% of total value of the fund’s assets in public fund certificates or shares of public securities investment companies;

+ Do not invest more than 5% of total value of the fund’s assets in the assets specified in Points dd Clause 2 Article 24 of Circular 98/2020/TT-BTC.

- The fund shall not invest in its fund certificates;

- The fund’s borrowing, lending, repo transactions, margin trading and short sale shall be carried out in accordance with Article 25 of Circular 98/2020/TT-BTC.

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