NGUYEN THI NGOC - HA LAN ANH
Legal Services
Investconsult Group
Developing a real estate market is a major goal for Vietnam’s economic development. With the Land Law, Housing Law and Law on Real Estate Business, the nation has a basic legal framework in place for real estate transactions, although limitations exist in current regulations.
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Land issues in real estate projects
1. To carry out real estate projects, foreign investors may establish enterprises with 100% foreign capital, joint ventures or business cooperation contracts. They may rent land for their projects and pay rent on an annual basis or in a lump sum, but commercial projects may only enter the real estate market after foreign investors have paid land rent in a lump sum for the whole rental term (Point e, Clause 1, Article 59 of Decree No. 181). Therefore, in order to sell residential property, investors are required to pay rent in a lump sum for the whole land rental term.
Foreign investors may rent land for 50 years (or up to 70 years in special cases, per Article 67 of the Land Law). Foreign investors and foreign-invested enterprises are not allowed to receive land use rights transferred from Vietnamese organizations or individuals and are not allocated land by the State of Vietnam for carrying out projects.
2. Under Article 58 of the 2003 Land Law, the State may allocate or let land in the form of auction of land use rights or bidding for projects with respect to projects for construction of dwellings for sale or lease, investment in building infrastructure for transfer or lease, or use of land for production or business purposes. Given the specific conditions set on participation in such an auction or bidding, foreign investors investing in Vietnam for the first time would find it difficult to participate. For instance, according to Article 13 of Decree No. 90, the selection of investors for commercial housing development projects will be made on the principle that all land lots reserved for commercial housing development in the locality must be publicized for organizations and individuals of all economic sectors to know and have an opportunity to register their participation in the capacity as project investors (Clause 1). At the expiration of the time limit following the announcement of the call for investment, if only one investor who satisfies the conditions specified in Clause 3, Article 12 of the Decree registers for participation, this investor will be selected as project investor. If two or more investors register, a bidding will be organized to select an investor pursuant to Article 14 of Decree No. 90.
Under Article 12 of Decree No. 90, project investors must have a lawful real estate business registration certificate or investment certificate. Their own investment capital to be used for project execution must be at least equal to 15% of total capital of the project, if the project uses less than 20 ha of land, and 20% of total capital of the project, if the project uses 20 ha or more. Under the 2005 Investment Law, foreign investors making investment in Vietnam for the first time must prepare investment projects and may receive investment certificates together with the verification of projects. As such, they may not have legal person status when making registration according to Article 11 so as to be selected as investors for projects in commercial housing development.
3. In realty, foreign investors still complete procedures for application to rent land for project execution without having to participate in auctions or bidding, but the most feasible option is that they enter into joint ventures with domestic investors for executing projects. The Vietnamese party may contribute capital in the form of land use rights, but only if it has been allocated land or leased land for which it has paid rent in a lump sum or has paid for many years while a remaining land lease duration for which land rents have been paid must be at least five years (Point d, Clause 1, Article 101 of the 2003 Land Law). However, under the new Land Law, Vietnamese enterprises are no longer permitted to rent land and pay rent in a lump sum for the whole rental term or pay rent for many years in advance. Instead, they are only permitted to pay rent on an annual basis (Clause 1, Article 35 of the 2003 Land Law). In light of this change, the contribution in the form of rights to use rented land for which land rents have been paid in a lump sum is applicable only to enterprises that have leased land before the effective date of the Land Law.
Real estate transactions
According to Article 6 of the Real Estate Business Law (REBL), real estate that can be traded include houses and construction works of all kinds as stipulated in the construction law; land use rights permitted to be traded on the real estate market as stipulated in the land law; and other types of real estate as stipulated by law.
Trading of dwelling houses and construction works of domestic organizations and individuals:
Under Clause 1, Article 9 of the REBL, domestic organizations and individuals may trade in real estate within the scope of investing in building houses and construction works for sale, lease or lease-purchase; purchasing houses or construction works for sale, lease or lease-purchase; and renting houses or construction works for sub-lease.
Trading of dwelling houses and construction works of foreign organizations and individuals and overseas Vietnamese:
Foreign investors and overseas Vietnamese may trade in real estate within a narrower scope than domestic investors. Specifically, under Clause 1, Article 10 of the REBL, their real estate business is limited to investing in building houses and construction works for sale, lease or lease-purchase. According to Article 18 of the REBL, investment in building houses or construction works includes investment in building new houses and construction works and investment in renovating and repairing existing ones.
The above regulations may cause confusion in their application. Article 21 of the REBL permits transfer of the whole of a housing, urban center development or industrial park infrastructure project, which means that domestic or foreign investors may purchase the whole of such project which is still under construction or has been completed for business purposes (sale or lease). Meanwhile, according to Clause 1 of Article 10 of the REBL, in these cases, foreign investors or overseas Vietnamese are required to make additional investments in renovating or repairing existing houses or construction works before they can sell or lease them. This sounds unreasonable as in reality these houses or works may have been completed and new investors can forthwith put them into business. In addition, if a Vietnam-based company which is executing a project transfers the whole project to its overseas parent company for business purposes, it cannot do so if it does not yet make additional investment or any renovation.
Buyer deposits:
At present, a limit ratio of capital mobilized in advance to the price of a house is set by current law. Specifically, under Article 39 of the Housing Law, investors may mobilize capital from advance payments of persons who wish to buy or rent houses. This can be realized only when the house designs have been approved and the house foundations have been built. Total amount of money which can be mobilized in advance must not exceed 70% of the contractual value of the house. Project owners may decide on this mobilization of capital without having to obtain approval from any authorities. The use of a housing project which is not executed yet to mobilize and misuse capital of house buyers in any form is strictly forbidden (Clause 2, Article 23 of Decree No. 01).
Deposits of l and use right transferees:
Under Clause 6, Article 15 of Decree No. 90, project owners may transfer only land with infrastructure works to other project owners. At present no limitations are set by law on the proportion of capital which can be mobilized in advance from land use right transferees. Nevertheless, under Point e, Clause 2, Article 7 of the REBL on conditions of putting land use rights into business, in case of transferring or leasing land use rights under new urban center projects, housing projects or industrial park infrastructure projects, on the land areas in question there must exist infrastructure works corresponding to the approved contents and schedule of the projects. In addition,
(i) in case of new urban center projects, under Clause 2, Article 6 of Decree No. 02 and Section 1.3 of Circular No. 04/2006/TT-BXD of August 18, 2006 (Circular No. 04) guiding the implementation of Decree No. 02, project owners may, after complete the building of infrastructure facilities which can serve the construction and operation of secondary projects, invite secondary project investors to invest in building the projects;
(ii) in case of projects on building houses for sale or lease, under Section 8 of Decree No. 17/2006/ND-CP of January 27, 2006 (Decree No. 17) amending Clause 1, Article 101 of Decree No. 181, the transfer of land use rights of these projects is provided as follows:
a/ For cities, towns, new urban centers of cities or towns or new urban centers already planned to be developed into cities or towns, the transfer of land use rights to households or individuals in the form of selling ground areas on which houses are not yet built is prohibited. Project investors may transfer land use rights to economic entities to land areas on which comprehensive infrastructure facilities have been built according to the approved projects or component projects of the approved investment projects; these economic entities are required to use such land areas for proper purposes and carry out proper construction activities according to the schedule set for the projects;
b/ For other areas, the transfer of land use rights of housing development projects must be made in accordance with Point a. For an investment project on building infrastructure in a residential area, the project investor should carry out construction according to the approved project if it wants to transfer land use rights attached to such infrastructure to economic entities, households or individuals.
In all cases, then, mobilization of advance capital from other investors for the execution of a housing, new urban center or industrial park infrastructure project is not permitted when infrastructure facilities are not yet built.
Investing in building houses and construction works for business purposes:
Under Article 18 of the REBL, organizations and individuals engaged in real estate business may invest in building houses or works for business purposes in accordance with construction plans approved by competent state agencies in the following forms: (i) Investing in building new houses or works and (ii) investing in renovating or repairing existing houses or works. When investing in building new urban centers, dwelling houses or industrial park infrastructures, investment projects must be formulated. The selection of investors for new urban center, housing or industrial park infrastructure projects must comply with the laws on construction and bidding. Project investors must have financial capacity for executing projects.
Dealing in houses:
Under Article 59 of the REBL, organizations and individuals engaged in real estate business must sell, transfer or lease real estate through the real estate trading floor in accordance with this Law.
Transfer of houses and construction works:
Under Article 22 of the Housing Law, houses and construction works which can be sold and purchased include houses and construction works which already exist, are under construction or to be erected in the future according to approved projects, designs and schedules. Sale of houses or construction works must be associated with transfer of land use rights, specifically: (i) for individual villas or houses located in urban areas, they must be transferred together with their land use rights and (ii) for other houses and construction works, the transfer of their land use rights should be made in accordance with the land law.
The sale of apartments or part of an apartment building must be associated with the land use rights, the parts under common use and equipment in the building under common ownership.
The sale of houses or construction works must be expressed in contracts according to the provisions of the REBL and other relevant laws. In case of sale of houses or construction works to be erected in the future, the involved parties are required to reach agreement in their contracts on the application of the sale prices at the time of signing contracts, which will not depend on the prices at the time of delivery.
Sale and transfer of real estates by advance payment, deferred payment or payment in installments:
Under Article 14 of the REBL, organizations and individuals may purchase, sell or transfer real estate with advance payments, deferred payments or payment in installments. Under Article 39 of the Housing Law, the purchase and sale of commercial houses may be effected by lump sum payment, deferred payment or payment in installments.
An investor may mobilize capital from advance payments of those who wish to purchase or lease houses only when the house designs have been approved and the house foundations have been completely built. Total amount which may be mobilized must not exceed 70% of the contractual prices of houses.
Lease of houses:
Under Article 28 of the REBL, (i) houses and construction works for lease must be existing ones and (ii) real estate business organizations or individuals that have houses or construction works for lease must conduct transactions through the real estate trading floor.
Lease-purchase of houses:
Under Article 33 of the REBL, (i) houses and construction works for lease-purchase must be existing ones; (ii) real estate business organizations and individuals that have houses or construction works for lease-purchase must make lease-purchase transactions through the real estate trading floor; and (iii) the lease-purchase of houses or construction works must be associated with land use rights and dossiers of those houses or works.
Sale, transfer, lease and lease-purchase prices:
Under Article 68 of the REBL, the sale, transfer, lease and lease-purchase prices of real estate are agreed upon by the involved parties through auction or according to law. The contractual parties may reach agreement to select a third party to determine the prices. For real estate belonging to projects eligible for state preferences and which serve policy beneficiaries, their prices or pricing principles are set by the State.
According to Article 39 of the Housing Law, the sale prices and rent rates of houses and methods of payment may be agreed upon by the involved parties in their contracts.
Under Articles 22 and 23 of Decree No. 02, for apartment buildings, houses and other works eligible for state priorities and preferences to serve specific beneficiaries as identified by the State, their rent rates and transfer prices are set by the State and subject to inspection by competent state agencies in charge of rental rates and transfer prices, and by lessees and transferees themselves.
New urban center projects
Lease of works (Article 22 of Decree No. 02):
Works for lease include houses, apartments, working offices and other works. Details of lease of houses and apartments, including time, place, method, procedures, conditions and prices, must be announced on the mass media. The lessor takes responsibility before law for the publicity and legality of the lease.
Transfer of works (Article 23 of Decree No. 02):
Works, parts of works, apartments and houses may be transferred. Details of transfer of apartments or houses, including time, place, method, procedures, conditions and prices, should be announced on the mass media. Transfer is made according to regulations on sale and purchase of houses, immovables and other properties through transfer contracts.
Industrial park infrastructure
Under Clause 2, Article 19 of Decree No. 108, investors investing in the commercial operation of infrastructure in industrial parks, export-processing zones, hi-tech zones and economic zones have the rights:
- To build workshops, offices and storehouses and storage yards in industrial parks, export-processing zones, hi-tech zones or economic zones for sale or lease;
- To determine rent rates for lease or sub-lease of land on which technical infrastructure has been built; to determine charges for the use of technical infrastructure, service facilities and utilities in industrial parks, export-processing zones, hi-tech zones or economic zones; and set rent rates for lease or sale prices of workshops, offices and storehouses and storage yards and service charges;
- To collect charges for the use of infrastructure and public utilities in industrial parks, export-processing zones, hi-tech zones or economic zones; and,
- To transfer land use rights, lease or sub-lease land on which technical infrastructure has been built; to determine charges for the use of technical infrastructure works in industrial parks, export-processing zones, hi-tech zones or economic zones to other investors in accordance with the land and real estate business laws.-