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The 2023 Law on Real Estate Business (the Law) takes effect on August 1 and replaces the 2014 Law on Real Estate Business (the 2014 Law). Below are several novel provisions of the Law that are worthy of note to real estate project owners.
Forms of real estate business
The Law has officially recognized the form of real estate business for construction floor areas in construction works (such as commercial floor areas, offices, condotel, officetel, stores, etc., in blocks of construction works). It also concretizes the form of trading in land use rights under real estate projects into the form of trading in the rights to use land with technical infrastructure under real estate projects.
As stated in Article 10, foreign-invested enterprises subject to the conditions and investment procedures required for foreign investors under the Investment Law may do real estate business in the following forms: (i) Building houses and construction works associated with land use rights for sale, lease or lease-purchase through real estate projects in accordance with the land law; (ii) Building technical infrastructure in real estate projects for transfer, lease or sublease of the rights to use land with technical infrastructure in accordance with the land law; (iii) Renting houses, construction works, or construction floor areas in construction works for sublease; and (iv) Acquiring the whole or part of a real estate project to continue construction and business activities.
Meanwhile, foreign-invested enterprises not subject to such conditions and procedures will be treated like domestic enterprises.
Real estate business activities
Entities allowed to purchase or rent houses or construction works
According to Article 15 of the Law, overseas Vietnamese are classified into those who are Vietnamese citizens and those who are not Vietnamese citizens. It is stated that overseas Vietnamese other than Vietnamese citizens may buy houses if they are permitted to enter the country; or they may purchase, rent, or rent with the option to purchase construction works or construction floor areas in construction works for use.
Foreign-invested enterprises not subject to the conditions and investment procedures required for foreign investors under the Investment Law are treated like domestic enterprises when they purchase, rent, or rent with the option to purchase houses and construction works.
Types of real estate and real estate projects put for business
The Law has officially recognized two more types of real estate products, namely: construction works for use for the purposes of education, healthcare, sports, culture, office, commerce, services, tourism, accommodation, and industry, and mixed-use construction works; and construction floor areas in these works.
Particularly for real estate products being land use rights, the Law concretizes them into the rights to use land with technical infrastructure in real estate projects, including: land divided into plots for sale to individuals for house construction; and land with technical infrastructure for secondary project owners to build houses and construction works.
The Law specifies conditions for sale or lease-purchase of construction floor areas in construction works, saying that in addition to the conditions required for houses and construction works, such construction floor areas must:
(i) meet the law-specified conditions for issuance of asset ownership registration certificates to buyers or lessees;
(ii) have specific use functions and be separate from other areas in the construction works and shown in projects’ design documents;
(iii) be designed in conformity with specialized technical regulations or standards;
(iv) facilitate the determination of land use rights associated herewith in terms of land use form and period, land areas under shared use or separate use with other owners of the construction works or other land users;
(v) facilitate the determination of land-related financial obligations, including land use levy, land rental, and taxes, charges and fees payable by sellers/lessors or purchasers/lessees, which must be stated in purchase and sale or lease-purchase contracts; and,
(vi) be built on land allocated by the State with land use levy or leased by the State with one-off payment of land rental for the entire lease period.
With respect to future houses and construction works, the Law only permits the sale and lease-purchase of future houses, construction works, and construction floor areas in construction works. It abolishes the form of lease of future real estate as stipulated in the 2014 Law.
The Law adds conditions for putting future houses and construction works for trading. Specifically, the commencement of building of such houses and construction works must comply with the construction law while such houses and construction works must bear one of the papers proving land use rights. Also, such houses and construction works must be accompanied by the following papers: construction permit and dossier of application for a construction permit if such permit is required; construction commencement notice and design documents if a construction permit is not required; and papers on pre-acceptance testing of the completion of construction of technical infrastructure.
In particular, the Law modifies the procedures for granting guarantee in sale or lease-purchase of future houses as follows:
- The project owner and the bank sign a guarantee agreement;
- The bank issues a commitment confirming its issuance of a letter of guarantee to all purchasers/lessees of future houses;
- The project owner sends a copy of the above commitment to the purchasers/lessees when signing contracts on purchase and sale or lease-purchase of future houses;
- Based on the signed contract, the bank issues a letter of guarantee to the purchasers/lessees.
The project owner must provide a letter of guarantee to the purchasers/lessees within 10 working days from the date of contract signing or within another time limit agreed by the contracting parties. The project owner can only receive payment from the customer under the contract after it provides a letter of guarantee to the customer.
Trading in the rights to use land with technical infrastructure in real estate projects
The Law provides three forms of trading in the rights to use land with technical infrastructure, including: transfer of the rights to use land with technical infrastructure in real estate projects to individuals for house construction (division of land plots for sale); transfer of the rights to use land with technical infrastructure in real estate projects to organizations to build houses and construction works (transfer to secondary project owners); and lease or sublease of the rights to use land with technical infrastructure in real estate projects.
The Law also contains specific provisions on conditions for, and rights and obligations of related parties in, the transfer of the rights to use land with technical infrastructure. Accordingly, to be transferred to individuals for house construction, land areas must be those not located in wards, districts or cities of urban centers of special grade, grade I, grade II or grade III; not subject to auction of land use rights for investment in house construction projects under the Land Law; or located in the areas permitted by provincial-level People’s Committees.
Before transferring land with technical infrastructure in real estate projects, project owners must send a notice, stating that the land use rights are eligible for transfer, to provincial-level state management agencies in charge of real estate business.
In case a project owner (transferor) is sanctioned for administrative violations in the field of investment, construction, land, housing, real estate business or tax related to the rights to use land with technical infrastructure put for commercial operation, it may sign a transfer contract only after executing the sanctioning decision.
Transfer of the whole or part of real estate projects
Basically, the Law’s provisions on transfer of part or the whole of a real estate project remain similar to those of the 2014 Law. However, there are some new points on conditions for transfer of a project:
In case the project is currently mortgaged to secure obligation performance in accordance with law, the mortgage must be released before the project is transferred. Another condition is that the project is still in the period of implementation.
In case of transfer of part of a real estate project, it is additionally required that work items or use purposes of works of the to-be-transferred part of the project are independent from other parts of the project.
A real estate enterprise wishing to become the transferee of another project must: (i) not be subject to ban from real estate business, suspension or termination from operation under a court’s ruling or a competent state agency’s decision; (ii) ensure the debt-to-equity ratio or bond-to-equity ratio; (iii) have equity not lower than 20 percent or 15 percent of total investment capital, for projects involving the use of less than 20 hectares of land or projects involving the use of 20 hectares or more, is capable of mobilizing capital to implement the project.
Meanwhile, the transferring project owner only needs to obtain a land allocation decision, land lease decision or decision permitting land repurposing. It also has to have fulfilled land-related financial obligations for the transferred project or transferred part of the project without having to acquire land use rights certificate.
Regarding the authority to allow the transfer of part or the whole of projects, the Law says that the Prime Minister may decide to permit the transfer of the whole or part of real estate projects, for projects subject to his investment policy decision, investment policy approval or investment approval. The Prime Minister may authorize provincial-level People’s Committees to decide on transfer of part of real estate projects; in this case, the procedures for the transfer are similar to those for transferring the whole or part of projects subject to approval by provincial-level People’s Committees.
Real estate business contracts
The Law specifies 11 types of real estate business contracts, including:
- House purchase and sale or lease-purchase contract;
- House lease contract;
- Contract on purchase and sale or lease-purchase of construction works or construction floor areas in construction works with functions for tourism and accommodation purposes;
- Contract on lease of construction works or construction floor areas in construction works with functions for tourism and accommodation purposes;
- Contract on purchase and sale or lease-purchase of construction works or construction floor areas in construction works with functions for education, health, sports, culture, office, commerce, service and industry purposes, and mixed-use construction works;
- Contract on lease of construction works or construction floor areas in construction works with functions for education, health, sports, culture, office, commerce, service and industry purposes, and mixed-use construction works;
- Contract on transfer of the right to use land with technical infrastructure in real estate projects;
- Contract on lease or sublease of the right to use land with technical infrastructure in real estate projects;
- Contract on transfer of the whole of real estate projects;
- Contract on transfer of part of real estate projects; and,
- Contract on transfer of contracts of purchase and sale or lease-purchase of houses or construction works.
The Law also allows transfer of three types of contracts on purchase and sale or lease-purchase of houses or construction works, namely: contract on purchase and sale of future houses; contract on lease-purchase of future houses; and contract on lease-purchase of available construction works.
Transitional provisions
Project owners that commence operation before January 1, 2025, while not yet meeting all the conditions specified in the Law must manage to fully meet such conditions within six months counting from January 1, 2025.
Projects that have satisfied the 2014 Law’s requirements for projects on investment in real estate for business before January 1, 2025, are not required to meet the requirements for real estate projects specified in Article 11 of the Law. If undergoing adjustment procedures after January 1, 2023, these projects must meet the requirements for real estate projects set in the Law.
A valid dossier for transfer of the whole or part of a real estate project that has been received under the 2014 Law but remains unprocessed by January 1, 2025, will further be processed under the 2014 Law. If the procedures for transfer of the whole or part of a real estate project are re-carried out after January 1, 2025, the transfer must comply with the Law’s provisions.
Foreign-invested enterprises referred to in the 2014 Law that currently proceed with the procedures for acquisition of the whole or part of a real estate project but, by January 1, 2025, have yet to complete land-related procedures for the to-be-transferred project or to-be-transferred part of the project must carry out land-related procedures under Article 42.3 of the Law.
For future houses and construction works that are eligible to be put for trading under the 2014 Law but, by January 1, 2025, purchase and sale or lease-purchase contracts have not yet been signed, it is required to proceed with the procedures for purchase and sale or lease-purchase procedures in accordance with the 2014 Law on the condition that information on real estate and real estate projects to be put for trading is disclosed under the Law before the signing of purchase and sale or lease-purchase contracts.
For project owners that have obtained the guaranteeing bank’s approval to grant guarantee for their financial obligations toward the purchasers or lessees-purchase of future houses, they are not required to do again with the procedures for grant of guarantee under the Law.
For contracts on purchase and sale or lease-purchase of future houses for which the guaranteeing bank has issued a certificate of guarantee for the project owners’ financial obligations toward customers before January 1, 2025, it is not compelled to comply with the Law’s provisions on guarantee.
In case contracts on purchase and sale or lease-purchase of future houses have been established under the 2014 Law and guiding texts before January 1, 2025, but the handover of houses has yet to take place, the Law’s provisions on non-guarantee agreements do not apply.
Real estate business contracts established under the 2014 Law before January 1, 2025, must still comply with the 2014 Law and detailing and guiding documents. If wishing to modify and supplement such contracts after January 1, 2025, the contracting parties will have to modify and supplement relevant contents of the contracts in accordance with the Law.-
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