Vietnam’s New Real Estate Business Law: Key Insights
Vietnam is set to revamp its real estate sector with the introduction of Law No. 29/2023/QH15 on Real Estate Business, which the National Assembly passed on November 28, 2023. This new legislation, effective from January 1, 2025, aims to enhance clarity, transparency, and stability in the country’s real estate market, stepping in to replace the 2014 law.
Stricter Regulations on Off-Plan Sales
One of the hallmark features of the new law is the tightening of regulations surrounding off-plan property sales. Properties must now be part of formally approved projects, ensuring that all transactions are legal and transparent. This initiative is designed to protect buyers and promote trust within the marketplace.
Deposit Caps and Buyer Empowerment
The law introduces clear guidelines on deposit amounts, capping the maximum deposit for off-plan purchases at 5% of the purchase price. This change aims to foster financial transparency and avoid potential disputes between buyers and sellers.
Furthermore, buyers are granted more autonomy regarding bank guarantees on off-plan projects. While sellers are still required to secure a guarantee, buyers can now decide whether it is necessary, simplifying the administrative process.
Investment Requirements for Developers
The law stipulates minimum investment requirements, obligating investors to contribute 20% of the total capital for projects under 20 hectares, and 15% for larger projects. These stipulations enhance financial security and ensure that developers have a vested interest in their projects.
In an additional move to provide flexibility, buyers can defer 5% of the total payment until they receive ownership certificates. This initiative seeks to foster confidence in real estate transactions.
Changes for Foreign-Invested Enterprises (FIEs)
The new law significantly impacts Foreign-Invested Enterprises (FIEs). Previously, FIEs faced severe restrictions compared to domestic companies, which often hindered their participation in the real estate market.
Under the new regulations, FIEs will be classified into two categories:
- FIEs with More Than 50% Foreign Ownership: Subject to specified conditions in the Law on Investment.
- FIEs with 50% or Less Foreign Ownership: Treated similarly to domestic companies, enabling them greater freedom to engage in real estate activities.
This change aims to encourage foreign investment, injecting vitality into Vietnam’s real estate sector.
Regulation of Property Sale and Lease
For the first time, the law addresses deposits for property sales and lease-purchases. Property developers must limit the deposit to 5% of the contract price, provided the property meets trading requirements. This aims to deter developers from improperly raising funds through deposits on ineligible projects.
Categories of Properties for Trading
The law categorizes properties into three distinct types:
- Construction works.
- Floor areas of construction works.
- Land use rights relating to existing infrastructure.
This classification not only clarifies eligible properties but also expands the scope to include mixed-use developments like condotels and shophouses, catering to the diverse landscape of Vietnam’s real estate offerings.
Prohibition on Trading Land Use Rights
New restrictions on land use rights trading will be implemented, particularly in special, class I, II, or III urban areas. This marks a shift from the previous legislation by expanding the categories where trading is prohibited, aiming to regulate urban development more effectively.
Pre-Market Eligibility Criteria
Before any property can be circulated in the market, sellers must provide specific documentation to validate ownership, project execution capabilities, and financial obligations. This includes information on off-plan developments, existing apartments, and infrastructure projects, ensuring potential buyers have access to comprehensive data.
FIEs, in particular, must demonstrate financial resilience to mitigate risks of insolvency, showcasing a secure ratio of loans and bonds to equity, and maintaining a minimum investment ratio for each project, generally set at 20%.
Streamlining Project Transfers
The law also clarifies rules around the transfer of real estate projects, specifying that transfers must involve projects that include actual construction. It introduces a series of document requirements for such transfers, enhancing governance and minimizing disputes.
Real Estate Brokerage Regulations
In a significant change, individuals conducting real estate brokerage must operate through licensed entities instead of under their names. This aims to professionalize the industry and improve service quality.
Key revisions include:
- Reducing the minimum number of required brokers in an agency from two to one.
- Mandating adherence to government regulations and operational protocols, including maintaining adequate infrastructure.
These changes aim to bolster professionalism and accountability in Vietnamese real estate brokerage.
Final Thoughts
With the forthcoming implementation of the new Real Estate Business Law, Vietnam is on track to create a more secure, transparent, and attractive real estate market. Enhanced protections for consumers and empowering measures for investors are expected to provide a solid foundation for future growth in the sector.