Knowledge Highlights 22 April 2021

On 8 February 2021, Decree 148/2020/ND-CP (“Decree 148”), which was adopted by the Vietnam Government on 18 December 2020, came into effect. Decree 148 amends and supplements a number of provisions set out in Decree 43/2014/ND-CP, Decree 47/2014/ND-CP and Decree 01/2017/ND-CP which provide guidance on the Law on Land 2013 (“Law on Land”).

In addition, on 26 March 2021, Decree 30/2021/ND-CP (“Decree 30”) came into effect. Decree 30 amends and supplements a number of provisions in Decree 99/2015/ND-CP (“Decree 99”), which provides guidance on the Law on Residential Housing 2014.

This article discusses the key highlights of the new Decrees.

1.   Clarification on auction of land use rights and bidding on land-using projects

Decree 148 seeks to clarify certain scenarios where the auction of land use rights (“LUR”) and bidding of land-using projects may be exempt.

Investment projects exempt from land use fees or land rent

Pursuant to the Law on Land, the allocation or lease of land by the State to develop projects which are exempt from land use fees or land rent (“LUF/Rent Exemption Projects”) will not be subject to auction of LUR or bidding on land-using projects.

Decree 148 clarifies the circumstances where auction of LUR or bidding on land-using projects will still apply to LUF/Rent Exemption Projects. These are as follows:

  • Where the land use fee or land rent is exempt only for the basic construction period. The basic construction period is the expected period where the construction activities of a project are basically completed according to construction regulations. The specific basic construction period entitled to the land use fee or land rent exemption shall be determined based on the competent authority’s review of the particulars of each project;
  • Where the land is used for commercial or service purposes; or 
  • Where the project involves the development of commercial residential projects.

There is, however, no further detail or guidance on what “commercial or service purposes” entails. In particular, it remains unclear whether manufacturing projects which are entitled to the land use fee or land rent exemption, would be regarded as having a “commercial purpose” and therefore subject to the process of auction of LUR or bidding on land-using projects.

Small, narrow land parcels managed by the State

The term “small and narrow” land parcels refer to parcels of land having an area and/or shape that does not satisfy the minimum conditions prescribed by laws for division into separate land parcels (“Small and Narrow Land Parcels”).

Decree 148 provides that Small and Narrow Land Parcels managed by the State, which satisfy certain prescribed conditions and are not used for public purposes, may be allocated or leased to an adjacent land user without auction for LUR, unless there are two or more adjacent land users seeking allocation or lease of the same Small and Narrow Land Parcel.

The adjacent land user who successfully obtains the LUR for the Small and Narrow Land Parcels will be required to consolidate the land into his existing land.

State Land situated among other parcels of land of a project

Decree 148 clarifies the process of granting land lease or land allocation, to an investor, in relation to parcels of land of the State (“State Land”) where such State Land is situated among, and may pose a hindrance to, other parcels of land within the investor’s project area as follows:

  • If the State considers that the State Land can be split from the project area for the development of an independent project, the competent provincial People’s Committee will recover the State Land and allocate or lease such land to a potential land user through the process of auction of LUR. It is to be noted that the investor is allowed to participate in the auction of LUR. 
  • If the State considers that the State Land cannot be split from the project area for the development of an independent project, the competent provincial People’s Committee shall allocate or lease the State Land to the investor with no process of auction of LUR or bidding on land-using projects involved.

The State Land in the above context refers to bare land in the following cases:

  • land allocated by the State to any relevant body for the purpose of management of the land; 
  • agricultural land used for public purposes; or 
  • land where the land users do not have the right to transfer, lease, or make capital contributions in respect of LUR according to the Law on Land.

2.   Stricter regulations on management of apartment buildings’ sinking fund

The inadequacies of the previous regulations which guide the use, management and handover of a “sinking fund” - 2% of the value of a sale or hire-purchase of an apartment or other premises within apartment buildings (“Sinking Fund”) - have resulted in disputes among the developers, the building management board and the residents of apartment buildings.

To address such issues, Decree 30 seeks to impose stricter controls on the Sinking Fund.

  • Sinking Fund Account: Decree 99 requires the developers of apartment buildings to open an account at a licensed bank for the receipt of the Sinking Fund as paid by the property unit buyers and the developers themselves (for the areas designated for payment by developers) (“Sinking Fund Account”). Decree 30 further regulates that upon opening of the Sinking Fund Account, the developers shall submit a written notification to the Department of Construction (“DOC”) providing the bank account details of the Sinking Fund Account, and its deposit term. The Sinking Fund shall be placed in definitive deposit term before it is handed over to the building management board by the developers. 
  • Payment to Sinking Fund Account: Under the previous regulations, the property unit buyers could directly remit the Sinking Fund to the Sinking Fund Account, or pay the developers who would then pay the monies into the Sinking Fund Account. Under Decree 30, any payment of the Sinking Fund by the property unit buyers must be made directly to the Sinking Fund Account. The developers are obliged to pay the Sinking Fund, in respect of premises which have not been sold or leased out as at the date on which their apartment building is put in use, to the Sinking Fund Account. 
  • Use of the Sinking Fund: Prior to the handover of the Sinking Fund to the building management board, if maintenance work is required for items or equipment where the warranty terms have expired, the developer shall be responsible to perform such maintenance work in compliance with the laws. Any expenses that arise from the maintenance work will only be refunded to the developer after the Sinking Fund has been handed over to the building management board, provided that the developer has sufficient documents to support its claim for such expenses, including the maintenance plan, invoices and other relevant documents. 
  • Coercive handover of the Sinking Fund: Decree 99 provides for coercive measures to deal with developers who refuse or delay the handover of the Sinking Fund to the building management board (“Defaulting Developers”). However, Decree 99 does not specify a clear procedure for the implementation of such coercive measures. Decree 30 has now addressed the issue by providing further clarification, as follows: 
    • The provincial People’s Committee has the right to request banks to provide information relating to the Defaulting Developers’ business accounts, and to perform the obligations of the Defaulting Developers by transferring money from such accounts to the building management board’s account; 
    • The provincial People’s Committee has the right to sell the assets of the Defaulting Developers via auction. Such assets include houses or land that the Defaulting Developers own in the project area where the apartment building is located or in other project areas, and any other realisable assets that these developers own.

3.   Change of approach in determining residential projects where foreigners can purchase residential units

Under Decree 99, foreigners are not allowed to buy residential properties in projects located in national defence and security areas listed within the negative list issued by the DOC and based on guidance of the Ministry of Defence and the Ministry of Public Security. However, the negative list has not been publicly issued, most likely due to national defence sensitivities and concerns. The process relating to the issuance of LUR certificates (which legally reflect ownership of the residential property) to foreigners has therefore been relatively complicated. The Land Registration Authority may not issue LUR certificates to foreigners until it is made clear by the relevant authorities, on a project-by-project basis, that the project is not located in national defence and security areas.

To solve this issue, Decree 30 has taken an opposite approach, requiring the DOC to issue a positive list of projects where foreigners will be able to own residential properties. The positive list is expected to be released soon which will hopefully facilitate a more efficient process for the recognition of foreigners’ ownership of residential properties on LUR certificates. Nevertheless, it should be noted that the effectiveness of this new regulation will still largely depend on how active the DOC is in developing the positive list.

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