Developing a real estate market is one of Vietnam’s goals for the economy. With the Land Law, Housing Law and Law on Real Estate Business, the nation has a basic legal framework for the real estate business, although limitations exist in current regulations.
NGUYEN THI NGOC - HA LAN ANH
Legal Services
Investconsult Group
Concept under current law
According to Article 1 of the Law on Real Estate Business (LREB) which was adopted by the National Assembly on June 29, 2005, and took effect on January 1, 2007, “Real estate business means investing capital in creating, purchasing, accepting the transfer of or renting, immovables for sale, transfer, lease, sub-lease or rental for profit-making purposes.”
Under the LREB, real estate business includes business in dwelling houses and construction works and doing business in land use rights.
Registration and conditions
Under the LREB, individuals and organizations must register before engaging in real estate business. According to Article 29 of the 2005 Investment Law, real estate business is a conditional business. But in Appendix C to Decree No. 108/2006/ND-CP of September 22, 2006, detailing and guiding a number of articles of the Investment Law (Decree No. 18), this business is only conditional for foreign investors. So far, conditions on this business have not yet been specified in any regulations.
No legal limits are imposed on real estate business regarding types of enterprise and forms of investment. Domestic investors, overseas Vietnamese and foreign investors may set up limited liability companies, joint stock companies, partnerships or private enterprises to engage in real estate business. Foreign investors may also set up companies with 100% foreign capital and joint ventures or sign business cooperation contracts to conduct real estate business in Vietnam.
Current regulations provide that all domestic and foreign organizations and individuals may conduct real estate business in accordance with current legal provisions on this business.
Domestic investors may register for real estate business pursuant to Government Decree No. 88/2006/ND-CP of August 29, 2006, on business registration. No special conditions on capital and form of investment are required for this registration.
Foreign investors that invest in Vietnam for the first time in association with setting up economic organizations must have investment projects. They should apply for investment certificates, which are concurrently used as business registration certificates.
Authorities competent to grant investment certificates are provincial-level Planning and Investment Services. In case of investment in building industrial park infrastructure for lease, applications should be filed with industrial park management boards for grant of investment certificates. Within 30 days from the date of receipt of full and complete dossiers of application, investment certificates will be granted. In special cases, this time limit must not exceed 45 days.
Under the Investment Law, with an investment project, a domestic investor is not required to carry out investment registration procedures if the project is capitalized at under VND 15 billion and does not fall into any conditional investment domain; but is required to carry out investment registration procedures if the project is capitalized at between VND 15 billion and under VND 300 billion; or, if the project falls into a conditional investment domain, must follow procedures for investment verification.
While the 2005 Investment Law generally stipulates that the real estate business is a conditional business, Decree No. 108 classifies this business as conditional only for foreign investors. There are now different views on this issue. Some hold that real estate business is conditional for both domestic and foreign investors and therefore domestic and foreign projects are both subject to investment verification. Others assume that, as real estate business is conditional only on foreign investors, only real estate business projects with foreign investment must carry out investment verification procedures while domestic foreign investment projects, if falling outside conditional investment domains, are only required to carry out investment registration procedures. In order to avoid misinterpretation, this should be clarified in guiding documents.
Under Clause 1, Article 5 of Government Decree No. 90/2006/ND-CP of September 6, 2006, guiding implementation of the Housing Law (Decree No. 90), when making investment in housing development, investors should prepare housing development projects.
Under Article 137 of the Housing Law and Article 8 of Decree No. 90, housing development projects for commercial purposes located in provinces or centrally run cities should be submitted to provincial-level People’s Committees for approval. Those capitalized at less than VND 30 billion may be approved by district-level People’s Committee as authorized by provincial-level People’s Committees. According to Clause 4, Article 8 of Decree No. 90, in order to be approved, housing development projects must be evaluated by housing administration agencies of the bodies competent to approve housing development projects. This Decree, however, further stipulates that evaluation of housing development projects must comply with the provisions of the Housing Law, the Decree and other relevant laws on investment and construction. According to Clause 5, Article 8, the time limit for evaluation and approval of projects must not exceed 45 days from the date housing administration agencies receive projects.
It remains unclear whether the verification or registration of investment projects under the Investment Law should be carried out and when it should be carried out, before or after approval of projects. Many contents of project approval (under the Housing Law) and project verification (under the 2005 Investment Law) are overlapping and, as a result, the contents of a project approval decision and an investment certificate are also similar. At present, the 2005 Investment Law and Decree No. 108 stipulate specific kinds of papers in a dossier of application for investment verification. Meanwhile, Decree No. 90 does not yet specify the kinds of papers to be included in a dossier of application for project approval.
In case of change of content or progress of a project, an investor should report it to competent authorities for approval (Clause 5, Article 8 of the Housing Law). Meanwhile, the 2005 Investment Law and Decree No. 108 stipulate that for any change related to investor and capital of a project that leads to a change in registration or verification content the investment certificate must be adjusted by the agency that has granted it.
Under Clause 2, Article 5 of the 2005 Investment Law and Clause 4, Article 1 of Decree No. 108 “specific investment activities that are stipulated in a specialized law shall be governed by that specialized law.”
Therefore, in the case the legal documents are cross-invoked as analyzed above, which document is applied remains a question to be answered by lawmakers in order to ensure a transparent legal environment for investors.
Regarding investment in building new urban centers, according to Article 15 of the Regulation on new urban centers promulgated together with Government Decree No. 02/2006/ND-CP of January 5, 2006 (Decree No. 02), new urban center projects that, regardless of their capital sources, occupy a land area of 200 ha or more must be evaluated by provincial-level People’s Committees and submitted to the Prime Minister for consideration and permission for investment. The time limit for evaluating such a project is 60 working days and the time limit for considering and permitting investment is 30 working days. Provincial-level People’s Committees can permit investment projects on building new urban centers located in their provinces or cities, except projects mentioned in Clause 1 of Article 15. The time limit for evaluating such a project is 45 working days and the time limit for considering and permitting investment is 20 working days (Clauses 1 and 2). Agencies competent to permit investment projects on building new urban centers are also competent to permit adjustments to these projects.
However, apart from having to apply for permission for investment projects on building new urban centers, it remains unclear whether investors have to apply for investment verification.
As for investment conditions, though general regulations on conditions on real estate business are not yet issued, such as those on limitations on form of investment and type of enterprise, specific regulations regarding capital and land can be found in different specialized laws.
Under Article 12 of Decree No. 90, in case of conducting housing development for commercial purposes, apart from having a business registration or investment certificate, an investor’s own capital that is used for executing a project must account for at least 15% of total capital of the project occupying a land area of under 20 ha and for at least 20% of total capital of the project occupying 20 hectares or more.
For building new urban centers, under Article 11 of the Regulation on new urban centers promulgated together with Decree No. 02, an investor of a new urban center project must invest its own capital accounting for at least 20% of total investment capital of the project.
Under previous regulations, overseas Vietnamese could select to do business under the Law on Domestic Investment Promotion or the Law on Foreign Investment. These two laws are no longer effective now that the Investment Law and Enterprise Law have taken effect. However, there remain different regulations on market entry procedures applicable to foreign and domestic investors. Specifically, if they are regarded as domestic investors, overseas Vietnamese investors are not required to prepare new investment projects when they wish to set up enterprises. If they are regarded as foreign investors, they must prepare investment projects if they make investment for the first time in Vietnam. The 2005 Investment Law and the Enterprise Law mention nothing on this issue. It should be also noted that Article 9 and Article 10 of the REBL classify investors into (i) domestic organizations and individuals and (ii) foreign organizations and individuals and overseas Vietnamese. With these articles, whether overseas Vietnamese investors are automatically treated as foreign investors remains unclear, and this requires Government confirmation in an official document.
Ownership and ownership certificates
Domestic organizations and individuals, irrespective of their place of business registration and permanent civil status registration, are entitled to own houses and be granted house ownership certificates under Clause 2, Article 9 of the Housing Law and Clause 1, Article 42 of Decree No. 90.
Under Clauses 1 and 2, Article 66 of Decree No. 90, foreign organizations and individuals may own houses through building houses for lease and be granted house ownership certificates with regard to these houses. The duration of ownership of a house is the duration indicated in the investment certificate and is stated in the house ownership certificate.
When applying for a house ownership certificate, a foreign investor must have one document related to the project on building houses for lease (project approval decision or investment decision or investment certificate) and the land use right certificate.
Under Paragraph 2, Clause 2, Article 66 of Decree No. 90, in case of building houses for sale, foreign organizations or individuals may sell them to buyers but they will not be granted house ownership certificates. At present, the Housing Law, decrees or any other legal documents do not stipulate that foreign organizations and individuals that build houses for sale can have the right to own these houses. This truly is a limitation on foreigners’ right to houses which actually belong to them until they are sold to buyers. As a result, they cannot mortgage these houses with banks or credit institutions in Vietnam. It is also impossible for them to swap these houses with or donate them to other individuals or organizations. This limitation will tar the attractiveness of Vietnam’s investment environment in the domain of housing projects, an investment domain of great interest to a lot of foreign investors.
As for overseas Vietnamese, in case of building houses for lease, they have the right to own these houses and are granted house ownership certificates with regard to these houses (Point a, Clause 2 and Clause 3, Article 65 of Decree No. 90). The duration of ownership of a house is the duration indicated in the investment certificate and is stated in the house ownership certificate. When applying for a house ownership certificate, they must have an investment certificate and land use right certificate.
In case of building houses for sale, an overseas Vietnamese investor will not be granted a house ownership certificate (Clause 3, Article 65 of Decree No. 90). However, they are still entitled to own that house (Point a, Clause 2, Article 65). In principle, apart from the right to sell houses, overseas Vietnamese also have other rights of a house owner (exchange, donation, mortgage, etc.).
Investment preference
According to current regulations, housing development and new urban center projects are not entitled to investment preferences. However, in cases of investment in new urban centers, under Decree No. 02, enterprises are entitled to (i) exemption from land use levies for technical and infrastructure facilities they build and transfer to the State or for housing units for social policy beneficiaries and low-income earners; (ii) preferential investment loans for component projects on building houses for the poor and low-income earners; and (iii) mobilization of capital in the form of project bonds according to state regulations.
In addition, enterprises will also enjoy (i) free supply of information on plans for construction and development of new urban centers; (ii) the State’s investment and support for investment in building technical and social infrastructure inside and outside the fences of projects in line with the progress of building new urban centers; (iii) investment in building working offices of local administrative agencies based within new urban centers; and (iv) support for ground clearance in new urban centers.
According to the REBL, for real estate business projects, (i) the State will exempt and reduce land use levies and land rents for land areas on which infrastructure facilities are built and transferred to the State, infrastructure facilities for non-commercial purposes and housing units to be dwelt in by social policy beneficiaries; and (ii) state-owned credit institutions will grant preferential investment loans for projects to build houses for lease, rental or sale to people who have rendered meritorious services to the country, the poor, low- income earners, students, and workers in industrial parks and export-processing zones.-
(to be continued)
Relevant regulations on real estate business
The 2005 Civil Code
The 2003 Land Law
The 2005 Housing Law
The 2005 Real Estate Business Law
The 2005 Investment Law
The 2005 Enterprise Law
Government Decree No. 108/2006/ND-CP detailing and guiding a number of articles of the Investment Law
Government Decree No. 88/2006/ND-CP on business registration
Government Decree No. 90/2006/ND-CP guiding the implementation of the Housing Law
Government Decree No. 02/2006/ND-CP promulgating the Regulation on new urban centers
Construction Ministry Circular No. 04/2006/TT-BXD guiding Decree No. 02/2006/ND-CP
Decree No. 181/2004/ND-CP and Decree No. 17/2006/ND-CP guiding the implementation of the 2003 Land Law.-