Knowledge Highlights 15 April 2024
Key changes to real estate business in Vietnam from 1 January 2025
On 28 November 2023, the Vietnam National Assembly passed the Law on Real Estate Business 2023 No. 29/2023/QH15 (“2023 Law”), which will come into effect from 1 January 2025 and replace the Law on Real Estate Business No. 66/2014/QH13 (“2014 Law”). The adoption of the 2023 Law is a notable milestone in the real estate market, providing clear and strict regulations to manage this important sector and potentially provide better-functioning market.
This article discusses the key highlights of the 2023 Law.
Types of properties and real estate projects which can be traded
The 2023 Law classifies properties into (i) construction works, (ii) floor area of construction works, and (iii) land use rights relating to land with existing technical infrastructure in a real estate project.
Specifically, the 2023 Law sets out the following which can be made available for real estate trading:
- Residential properties and residential houses to be formed in the future;
- Construction works and construction works to be formed in the future, including construction works with functions serving educational, medical, sports, cultural, office, commercial, service, tourism, accommodation, industrial purposes, and construction works with mixed functions;
- The floor area of the construction works and construction works to be formed in the future;
- Land use rights relating to land with existing technical infrastructure in real estate projects; and
- Real estate projects.
More details regarding construction works, including with regard to floor area, will be provided by the Government in a guidance decree for ease of application in practice.
The new definition and classification of applicable properties may indicate that the 2023 Law will be more flexible and extensive so as to capture mixed-used properties - such as condotels, shophouses, officetels - available in the Vietnam market as well as new types of property in the future.
Scope of real estate business for investors
The 2023 Law seeks to provide more detail and to clarify the scope of real estate business activities investors are permitted to perform. The changes to the real estate regime as set out under the 2023 Law are based on lessons learned from the practical application of the 2014 Law and with the need to ensure consistency with other relevant laws in mind.
Specifically, the 2023 Law provides the real estate business activities that the following organisations and individuals will be allowed to invest in.
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No |
Item |
Group 1 |
Group 2 |
|
1 |
Groups and individuals affected |
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|
|
2 |
Investment and development |
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|
|
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|
3 |
Purchasing and leasing properties for subleasing |
|
N/A |
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N/A |
||
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N/A |
||
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4 |
Project acquisition |
|
|
Payment for sale / hire-purchase of properties to be formed in the future
Guarantees
As with the 2014 Law, the 2023 Law requires residential real estate developers to secure a bank guarantee issued by a domestic commercial bank or branch of a foreign bank legally operating in Vietnam to guarantee their financial obligations in respect of their sale of residential properties to customers. However, while the 2014 Law mandates the need for a guarantee for all customers in all circumstances, the 2023 Law provides that a bank guarantee is not required if a customer agrees to this in writing. This new provision may allow both residential real estate developers and customers to reduce costs, subject to the customers’ assessment of the financial risks associated with the real estate developer.
Payment schedule
The 2023 Law sets a maximum deposit payable of 5% of the total price when selling or granting the hire-purchase of the properties (including residential properties, construction works, or floor area). This limit was not prescribed in the 2014 Law.
Payments for these properties to be formed in the future remain tied to the project’s construction progress as stated in the 2014 Law, as follows:
|
No |
Progress |
Sale and purchase |
Hire-purchase |
|
1 |
First payment |
· Maximum of 30% of the contract value, including the deposit |
· Maximum of 30% of the contract value, including the deposit |
|
2 |
Subsequent instalments |
· Based on the construction progress; the total advance payments prior to handing over the properties are as follows:
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|
3 |
Total payment before issuance of certificate of land use rights and ownership of assets attached to land under name of customer |
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Payment method for real estate transactions and real estate services
The 2023 Law mandates that all cash payments for real estate transactions and real estate services must be made through bank accounts. This clarifies the existing position as current practice has seen payments made via cash/non-bank payments as the 2014 Law is unclear on the accepted method of payment. The 2023 Law also notes that the State will issue policies for organisations and individuals to make non-cash payments in real estate transactions.
This new requirement promotes the transparency of the transactions in real estate business and supports anti-money laundering efforts. To read more on Vietnam’s anti-money laundering policies, please read our article titled “Vietnam Law on Anti-Money Laundering 2022 in effect 1 March 2023”.
Template contracts in real estate transactions
The 2023 Law requires investors in real estate projects and enterprises engaged in real estate business to use prescribed template contracts in their business activities. This requirement is in keeping with Decree 02/2022/ND-CP which provides guidance on certain articles of the 2014 Law. However, there are practical concerns as to whether it is mandatory to use these templates in an unaltered form or whether it is sufficient for the parties to simply ensure that the key terms provided in the prescribed templates are included in their contracts.
The list of template contracts for real estate transactions is set out in Article 44.1 of the 2023 Law. These templates will be issued by the Government in a guidance decree at a later date. More detailed guidance on specific terms in these templates as well as on their usage in practice would also be welcome.
Publishing information about properties and real estate projects being traded
The 2023 Law prioritises real estate transparency by requiring businesses to publish all real estate and project details on the Ministry of Construction’s residential housing and market information system and on the websites of real estate business enterprises.
Pre-operational conditions for real estate related service business
Before commencing operations, enterprises conducting real estate brokerage services, real estate consultancy services, and real estate management services must submit the enterprise’s information to the State agency managing the real estate business sector at the provincial level where they are established. The information will be posted on the agency’s system relating to residential properties and the real estate market.
Operational conditions for real estate brokerage services
The 2023 Law no longer allows individuals to provide real estate brokerage services under their individual names but instead now requires individuals to provide this service through a real estate brokerage or an exchange company.
There are also new requirements for real estate brokerage services, as follows:
- Personnel: One certified broker is sufficient (this is a reduction of the current stipulated minimum of two).
- Operational requirements: The enterprises must implement specific rules for their services and maintain adequate physical and technical facilities as per Government regulations.
The above requirements are expected to boost the professionalism and transparency of the real estate brokerage landscape in the Vietnam market.
