Expectations of real estate businesses and brokers longing for specific guidance on legal capital, conditions on financial capacity of investors in projects for new urban centers, residential housing complexes and technical infrastructure of industrial parks, training and professional licensing of real estate brokers and appraisers, and management of real estate trading floors, are somewhat satisfied by Government Decree No. 153/2007/ND-CP of October 15, guiding the implementation of the Law on Real Estate Business.
The newly promulgated Decree gives the answer to the most-asked question in the real estate business circle and among investors about the legal capital required for legal entities trading in real estate. Accordingly, companies or cooperatives wishing to conduct real estate business must have at least VND 6 billion (draft regulations required cooperatives engaged in real estate to own a legal capital of VND 4 billion). This means many private enterprises and establishments providing real estate brokerage or appraisal services will not survive the new regulation. These businesses in fact act as intermediaries who earn commissions from both sides of real estate owners and purchasers (customers). They mushroomed and could exist until now because the Law on Real Estate Business contained no specific provision on the legal capital required for such businesses.
The Decree also requires investors in approved projects for new urban centers or technical infrastructure of industrial parks to have own capital equal at least to 20% of the total budget of their projects. For approved projects for residential housing complexes, investors’ own capital must not be lower than 15% of the total budget of projects occupying less than 20 hectares, 20% of the total budget of projects occupying 20 hectares or more.
Investors in real estate projects may reach agreement with their customers in written contracts on the purchase and sale of houses or construction works completely built but may not request advance payment by customers when their projects are yet to be commenced. This provision prevents the situation in which investors remain unable to commence projects due to their poor financial capacity long after they receive customers’ advances.
Under the Decree, advances must be paid in installments with the first installment paid to investors only after they have commenced construction on the technical infrastructure of projects. Subsequent advance installments must accord with the construction progress of those houses or construction works. Customers that pay advances enjoy real estate purchase or transfer prices effective at the time of contract signing.
However, in real estate trading in reality in recent years, many investors have usually started offering for sale houses or apartments immediately upon the approval of real estate projects and even before groundbreaking on infrastructure construction. These investors were frequently financially incapable to completely build such infrastructure works and had to raise capital to finance further construction by dividing land plots into small pieces and sell them or incomplete condominiums to interested customers. The transfer of a purchase and sale contract between the first purchasing party and a second or third purchasing party can be made with the arrangement of the project owning company (the seller). Though this type of transfer constitutes a type of real estate trading, it is not governed by the Law on Real Estate Business and exists within the scope of the law on civil contracts (renewed by resigning between real estate business companies and new purchasing parties) and transferors always go tax-free. Through several transfers, land and house prices climb to unreasonable levels which real consumers must eventually bear. This process is beneficial only to real estate intermediaries and causes losses to state budget revenues. The Decree’s provision on financial capacity only limits likely risks of approved projects which remain on paper, failing to help control the current situation of under-the-counter land and house trading.
More professional brokers
Under the Decree, individuals registering to provide real estate brokerage services must: (i) not be public servants or employees; (ii) have the full civil act capacity; (iii) not be banned from practicing certain professions under decisions of competent agencies; (iv) not be guilty of a crime or serving a sentence of imprisonment; and, (v) possess a certificate of training or retraining in real estate brokerage knowledge. Individuals wishing to get real estate appraiser certificates must, apart from meeting the above conditions, possess college or university diplomas. Persons who manage or administer real estate trading floors must also have certificates of training or retraining in knowledge for this profession.
Foreigners and Vietnamese possessing practice certificates for real estate brokerage or appraisal granted by foreign countries, which are still valid, are accredited and allowed to use these certificates for practice in Vietnam. Foreign practice certificates must be translated into Vietnamese and Vietnamese translations must be notarized or certified under Vietnamese law and sent to local agencies managing real estate business in localities where they practice for monitoring and management.
In order to prevent these new regulation from causing a standstill in real estate business, the Decree contains transitional provisions allowing organizations and individuals granted real estate business or real estate service provision registration certificates prior to its effective date to continue their business operations without having to carry out procedures for re-registration but requires them to additionally recruit qualified staff to reach the required number by January 1, 2009. Organizations and individuals that apply for business registration for real estate brokerage, or appraisal or real estate trading floor services but have an insufficient number of qualified staff may still be granted business registration certificates under the condition that they will acquire the number required by December 31, 2008.
After January 1, 2009, organizations and individuals that apply for business registration for real estate brokerage, appraisal or real estate trading floor services must have sufficient staff who possess required certificates. If wishing to provide real estate appraisal services, individuals who possess appraiser cards or construction cost appraisal engineer certificates must acquire real estate appraiser certificates.
From the effective date of this Decree to the end of December 31, 2008, individuals who possess price appraiser cards granted by competent state agencies under Decree No. 101/2005/ND-CP of August 3, 2005, on cost appraisal, and individuals who possess construction cost appraisal engineer certificates under Decree No. 99/2007/ND-CP of June 13, 2007, on management of expenditure for investment in construction works, may provide real estate appraisal services.
The objective of putting an end to the current situation of land and house trading transactions on paper that cause losses to the state budget as well as harm persons who have real needs for residential land and houses remains up in the air. To cope with complicated developments in the real estate business and make the real estate transactions more transparent, open and beneficial for society, many argue that it is necessary to further heighten the role of state agencies in managing all activities and transactions, especially the Ministry of Construction in promulgating and enforcing regulations, strategies and policies on real estate market development. Local People’s Committees also have to be more resolute in administering real estate business activities in their jurisdictions (VLLF).-