Project Advisory Group - Vietthink Law Firm
Government Decree 02 issued early this year, which elaborates some articles of the 2014 Law on Real Estate business, has been in effect since March 1. Issued to replace Decree 76 of 2015, the new Decree introduces several changes in order to solve existing problems in the real estate business as revealed during the enforcement of Decree 76; at the same time, Decree 02 partly meets practical needs of real estate business activities in recent years. Therefore, the new regulations are expected to create a momentum and promote the development of the real estate business market in the future.
Up to now, the process of application of Decree 76 has shown obstacles and many of its provisions are no longer suitable to the need and practice of real estate investment and business activities. In addition, the beginning of 2022 is the time when a series of new laws and decrees take effect, significantly affecting the legal corridor of the real estate market. Therefore, the Government’s timely promulgation of Decree 02 detailing a number of articles of the 2014 Law on Real Estate Business, which is suitably updated with the provisions of the 2020 Law on Investment and guiding documents and new regulations that take effect from January 1, is essential.
Decree 02 has a lot of new contents and adjusted provisions compared to Decree 76 that aim to create greater consistency and synchronization with other relevant legal documents. Especially, it is more practical and contains provisions that will help remove inadequacies, obstacles, and barriers for both entities participating in real estate investment and business activities and the State’s supervision and management of this and related fields, e.g., planning, investment, land, tax.
In particular, the real estate market in the meantime has started to become more active after a gloomy period of investment and business activities due to the influence of the COVID-19 pandemic. It tends to increase sharply in the post-pandemic period because of numerous policies to support and promote this market by the Government and other competent authorities. The real estate business investment is also one of the fields that has a great and important impact on the socio-economic development of the country, therefore, new regulations such as Decree 02 are appreciated by many experts. It is expected to be a push to help the real estate market develop stronger and be safer and more stable in the future. This article summarizes and analyzes some new highlights of Decree 02.
|High-rise apartment complexes in Gamuda Gardens urban center in Hanoi, a housing project funded by Gamuda Land, a Malaysian real estate developer__Photo: Danh Lam/VNA
Conditions for individuals and organizations to do real estate business
Decree 02 has updated, adjusted and detailed the conditions on organizations and individuals that are doing real estate business in accordance with current legal provisions on land, investment, construction, etc., specifically as follows:
Conditions on legal capital and equity of investors
Decree 02 has removed the requirement that enterprises must have a legal capital of VND 20 billion specified in Article 4 of Decree 76, and clarified the investor’s equity level of the real estate project based on the scale of land use, as well as the method of determining the level of equity.
Specifically, the investor must have the equity not less than 20 percent of the total investment capital of the project using a land area smaller than 20 hectares, or not less than 15 percent of the total investment capital of the project using a land area of 20 hectares or more. The determination of equity is based on the results of the most recent audited financial statements or the results of independent audit reports of the operating enterprise (made in the current year or the preceding year). In the case of a newly established enterprise, the equity will be determined according to the actual contributed charter capital as prescribed by law. When conducting real estate business, the project investor must satisfy the conditions prescribed for organizations and individuals doing real estate business.
This adjustment not only complies with Article 75.2.a of the 2020 Law on Investment but also ensures satisfaction of conditions regarding financial capacity of real estate project investors. This is one of the new regulations aimed to help create conditions and opportunities for individuals and organizations with a small financial scale to be able to participate in the real estate business market. The new set of regulations will promote the excitement of the real estate market in the near future. This adjustment also meets the actual needs of many small- and medium-sized enterprises that are regularly involved in the real estate business but find it difficult or impossible to meet the legal capital level of VND 20 billion according to the old regulations.
Conditions on information disclosure
According to Article 4.1.b of Decree 02, an organization or individual that takes part in the real estate business will have to disclose the following information: (i) its/his/her enterprise’s name, head office address, contact phone number, and name of the legal representative, (ii) the real estate put into business specified in Article 6.2 of the 2014 Law on Real Estate Business, and (iii) the mortgage of houses, construction works, real estate projects put into business (if any), the quantity and type of real estate products to be sold, quantity and type of real estate products already sold, transferred or lease-purchased, and the remaining quantity and type of products further put for their respective business.
To make it clear, Decree 02 say that, for a real estate investment and business project, information must be disclosed on the enterprise’s website, and at the head office of the project management unit. For the case of business through the real estate exchange, information must be publicized at the real estate exchange.
For publicly available information that is later changed, it must be promptly updated immediately after the change. The addition of this provision in Decree 02 is aimed at clarifying and enhancing the investor’s responsibility for publicity and transparency of information on the real estate market. This regulation gives organizations and individuals a more comprehensive view of the real estate project or product they wish to acquire, but also requires a lot of information from organizations and individuals dealing in real estate.
Conditions for putting real estate into business
Decree 02 supplements the regulation on trading of real estate that fully satisfies the conditions specified in Articles 9 and 55 of the 2014 Law on Real Estate Business. This regulation is synchronous, systematic and unified between the Law and its guiding documents, as well as clearer and stricter for organizations and individuals carrying out the real estate business activities.
Regulations for organizations, households and individuals that do not trade in real estate business regularly
Decree 02 adds the regulations regarding the sale, transfer, lease or lease-purchase of real estate on a small scale and an infrequent basis for organizations, households and individuals that are not required to satisfy the conditions like those doing real estate business. These entities include:
(i) Agencies and organizations that sell houses and construction works, or transfer land use rights due to bankruptcy, dissolution or division in accordance with law;
(ii) Agencies and organizations that sell, transfer, lease or lease-purchase real estate as public property in accordance with law;
(iii) Credit institutions, foreign bank branches, asset management companies of credit institutions, and the Vietnam Asset Management Company (VAMC) that sell houses, construction works, transfer land use rights, or transfer real estate projects being used as guarantees or mortgages for debt recovery in accordance with law;
(iv) Organizations, households and individuals that sell houses, construction works, or transfer land use rights under decisions of courts or competent state agencies when settling disputes, complaints and denunciations;
(v) Organizations, households and individuals that sell, lease or lease-purchase houses and construction works under lawful ownership, or transfer, lease or sublease land use rights under their lawful use rights; and,
(vi) Organizations, households and individuals that sell, lease, lease-purchase or transfer real estate that they invest in and build, which are not real estate construction investment projects for business as prescribed by law.
The aforementioned regulations will help remove inadequacies and obstacles for many agencies, organizations and individuals listed in Article 5 of the Decree and solve the practical needs of these subjects; especially (irregular) transactions for real estate as public property and property that has been recorded as capital of the State in the enterprise. In practice, over the past time, many state-owned enterprises, subsidiaries of state-owned enterprises, non-business units, agencies, and a number of organizations have encountered many difficulties and become unable to establish transactions on the transfer, lease or lease-purchase of real estate as public property or property that has been recorded as the State’s contributed capital in the enterprise (because there are many views that the above activities are classified as commercial activities. If these entities have not registered for real estate business lines and do not meet the conditions for real estate business, they cannot establish the above transactions). This problem becomes a barrier and conflicts with the principle of effective use of capital and assets of the State in enterprises because many real estate items are practically abandoned or not fully exploited but cannot be rented to generate revenues and cover expenses for enterprises on the principles of preserving and effectively using the State’s capital and assets.
At the same time, the available regulations for individuals and organizations that do not conduct real estate business on a regular basis will help enhance the inspection, supervision and post-audit work of state agencies as well as assurance of transparency of real estate transactions of individuals and households. Because these transactions in practice are inherently still happening and very exciting as a practical need of the market, but they have to “be established underground” and thereby create opportunities for entities to have income from activities such as “tax evasion” or “tax avoidance”.
Contract forms in real estate trading activities
Article 6 of Decree 02 regulates the real estate sale, transfer, lease or lease-purchase and requires the real estate project transfer to be conducted under contracts according to the forms provided in the Decree’s Appendix, including:
(i) Contract for sale, lease-purchase of apartments;
(ii) Contract for sale, lease-purchase of tourist apartments, officetels;
(iii) Contract for sale, lease-purchase of detached houses;
(iv) Contract for sale, lease-purchase of houses, buildings other than those mentioned in the cases (i), (ii), and (iii) above;
(v) Contract for lease of houses, buildings;
(vi) Contract for land use rights transfer;
(vii) Contract for land use rights lease, sub-lease; and,
(viii) Contract on transfer of all or a portion of real estate projects.
Providing a separate form of contract for sale or lease-purchase for each type of real estate such as house, building (apartment, tourist apartment/officetel, detached house, etc.) is considered an outstanding and reasonable change for real estate trading, which is a really “hot” activity at the moment. Since each type of real estate has its own characteristics related to designing, building, operating and different legal features, the supplementation of the contract form for sale, lease-purchase or transfer for each real estate type under Decree 02 is necessary.
Furthermore, the transactions of tourist apartments and officetels have taken place for a long time even though the Government did not have any specific guiding regulations on those transactions. Contract forms were made by the investors themselves, applied for each project and detailed business policies with no uniformity. Decree 02 provides contract forms for types of tourist apartment and officetel, and creates a unified reference base and makes more favorable conditions for investors in registering the contract form to a competent authority before engaging in transactions.
However, it should be noted that Decree 02’s issuance of contract forms for tourist apartments and officetels does not mean that investors of all projects having investment purpose and trading this type of real estate are allowed to sell and transfer this type. In particular, according to Article 1 about interpretation of terms in Form 02 to Decree 02, tourist apartments and officetels for purchase/sale transactions must be in the projects/buildings with the purchase/sale purpose approved in the legal dossier, design document of the projects in compliance with regulations on planning, investment, real estate trading, construction, tourism, etc.
Conditions for transfer of contracts for sale, lease-purchase of off-the-plan houses and transfer of contracts for lease-purchase of existing houses, buildings
Decree 02 has some vital points on conditions for transfer of contracts for sale or lease-purchase of off-the-plan houses and transfer of contracts for lease-purchase of existing houses and buildings.
Accordingly, the transfer of contracts for sale or lease-purchase of off-the-plan houses and transfer of contracts for sale or lease-purchase of existing houses and buildings do not apply to the case of social housing. This condition, which was not specified in Decree 76, is added to comply with Article 59 of the 2014 Law on Real Estate Business, as well as be consistent with the systematic, unified regulations guiding the transfer of contracts for sale or lease-purchase of off-the-plan houses.
At the same time, entities will be allowed to transfer contracts for sale or lease-purchase of houses and buildings, if (i) they have contracts for sale or lease-purchase in accordance with Article 6 of Decree 02 (in case the parties had signed a contract before this Decree takes effect, then they must produce that signed contract); (ii) they have not yet submitted the dossier to competent authorities for issuing a certificate of land use rights and ownership of houses and other land-attached assets; (iii) their contracts for sale or lease-purchase of houses and buildings do not involve any dispute or complaint; and (iv) houses and buildings stated in the contracts for sale or lease-purchase are not subjected to distraint or mortgage to secure the obligation performance in accordance with law, unless otherwise agreed by the mortgagee.
The transfer of contracts for sale or lease-purchase of houses and buildings must be carried out for the entire contract. In the case of sale or lease-purchase of many houses or buildings under a sole contract and the parties wish to transfer each house or building, the transferor must reach an agreement with the investor to amend the contract or sign an appendix to the contract before transferring the contract in accordance with this Decree.
It is suitable that Decree 02 contains systematic but detailed regulations on conditions related to the transfer of contracts for sale or lease-purchase of off-the-plan houses and the transfer of contracts for lease-purchase of existing houses and buildings. Moreover, it is expected to promote real estate transfer/business transactions, which can help the investors and buyers minimize any arising disputes, problems or legal issues.
Transfer of the whole or part of real estate projects
Decree 02 determines the principles, order, dossier and procedures for transfer of the whole or part of a real estate project.
Specifically, real estate projects eligible for investor approval and real estate projects granted an investment registration certificate under the 2020 Law on Investment will be transferred will be carried out under the law on investment.
For real estate projects not classified above, the transfer will be implemented in accordance with the 2014 Law on Real Estate Business and Decree 02.
It is understood that only the real estate projects subject to investor approval and granted an investment registration certificate under the 2020 Law on Investment will apply the provisions of the law on investment; meanwhile all remaining real estate projects other than two cases mentioned above will apply the provisions of the 2014 Law on Real estate Business and Decree 02. This provision is consistent with Article 46 of the 2020 Law on Investment, ensuring the separation and clarification of the cases of project transfer that will apply the provisions of the Law on Investment; and cases that will apply the provisions of the Law on Real Estate Business.
In addition, Decree 02 also adjusts a number of contents about the conditions, order and procedures for transferring part or the whole of real estate projects.
The regulations on conditions for organizations and individuals trading in real estate, the preparation and signing of real estate business contracts, the transfer of contracts for sale or lease-purchase of off-the-plan houses, lease-purchase of existing houses and buildings, and the transfer of all or a portion of real estate projects as specified in the Government’s decrees, the Prime Minister’s decisions, and other legal documents issued before the effective date of Decree 02, that have the contents regulated by Decree 02, will be implemented in accordance with the Decree from the date it takes effect.-