Real estate market in Vietnam has been showing signs of recovery after a long freeze. According to the Foreign Investment Agency, the country’s property market attracted US$1.69 billion in foreign direct investment (FDI) for 15 projects in the first seven months of 2015. As many inquiries about real estate business are recently increasing in our law firm, we would like to take this chance to inform some significant changes in the amended law on real estate business which took effect from 1st of July, 2015.
- Increased minimum legal capital
The minimum legal capital required to set up a real estate trading enterprise increased from the existing VND 6 billion to VND 20 billion. This is just the minimum legal capital, and actual charter capital required by the authorities may be greater on a case-by-case basis based on the scale of the planned project, however, the fact that the minimum legal capital increased over three times itself is considered a drastic change. The amended law also requires existing enterprises in real estate business to satisfy the same requirements within 1 year from the effective date. Besides, some small-scaled investors, and services which were not subject to a minimum legal capital requirement under the earlier law, such as real estate brokerage services and real estate counsellingservices are now considered as part of ‘real estate services’ under this law, therefore has to meet the minimum legal capital of VND 200 billion. Thus, the companies intending to limit their business in only real estate brokerage services and/or real estate counselling services are expected to suffer heavier burden in meeting the legal capital.
- Expanded scope of real estate business
The scope of real estate business has expanded for foreign investors. Foreign investors can build houses on the land which is leased by the State for lease (however, limited to the Law on Land which is silent regarding the case where the investor leased the land with annual payment); build houses or constructions other than houses on such land for sale, lease or hire-purchase (with same limitation as above); receive total or a part of real estate project from investors to build buildings on it for sale, for lease, or for lease purchase;build houses on land which is allocated by the State for sale, for lease, or for lease purchase; and rent buildings for sublease. Under the amended law,‘renting building for sublease’ and transferring ‘a part’ of real estate projecthas become possible which was not earlier. We understand that the former is whatmany foreign investors desired to conduct in real estate business and it finally has become possible. For the latter, requirements for handover of part of a project are also specified in the same law,including complying with plans approved to build the technical infrastructure and completion of compensation/site clearance.
- Regarding payment before handing over houses
The Law on Residential Housing 2006 (applicable to commercial and residential houses) provides that maximum ratio of contract value receivable by the seller shall not exceed 70% of contract value before handing over the commercial or residential houses. The amended Law on Real Estate Business provides further that payment in sale, purchase and hire-purchase of prospective real estate shall be made in installments whereby the first-time payment must not exceed 30 percent of contract value, and subsequent payments must commensurate with real estate construction schedules but must not exceed 70% of contract value when houses or construction works have not been handed over to the clients; if the seller or the hire-purchase seller being foreign-invested enterprises, total payment must not exceed 50 % of contract value. In case the purchaser or hirer has not been granted the certificate of land use rights and ownership of houses and other land-attached assets, the seller or the hire-purchase seller shall not collect over 95 percent of contract value; the remaining contract value shall be paid when a competent stage agency has granted a certificate of land use rights and ownership of houses and other land-attached assets to the purchaser or hirer.Accordingly, foreign real estate business enterprises will be further limited in the raising of capital before handing over property. This provision seems as a discriminating provision for foreign invested enterprises being sellers regarding the limitation of the percentage of receivable contract price before handover, however, it also shows efforts of the authorities to protect the rights of the purchasers until issuance of the ownership certificate.
- Guarantee by banks when investors fail to handover houses
As further measures to protect purchasers of houses, before selling or hire-purchasing prospective houses, investors of real estate projects must have their financial obligations for clients guaranteed by capable commercial banksdesignated by SBV, when investors fail to hand over houses according to schedule committed to clients, according to the amended law. This provides greater protection for the purchasers in that they are guaranteed by a capable bank for refund of money earlier paid when investors fail to hand over houses as committed, however, means more procedures and costs for the sellers(investors) to follow.
Amid growing interests in the real estate business by foreign investors, we hope the readers can be aware of the above-mentioned some of the significant changes in the amended law on real estate business to avoid any disadvantages and to recognize and enjoy the expanded rights when conducting business in this area.
JP LAW GROUP (HCMC)
34th Floor Unit 2 BitexcoFinancial Tower, 2 Hai Trieu, Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam
Tel: +84 8 3910 0618~9
Fax: +84 8 3910 0620
Please click AUSCHAM_JP_Legal Column_20150901_Summary of amendments in the Law on Real Estate Business in Vietnam to download the file.
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