Real estate business

Major Changes to Vietnam Real Estate Business Law Enforcement Rules

On January 6, 2022, the government issued Decree 2/2022 on the implementation of the Real Estate Affairs Act 2014. Decree 2/2022 will enter into force on March 1, 2022 and will replace Decree 76/2015. This article will summarize some notable new regulations introduced by Decree 2/2022.

This article is written by Nguyen Hoang Duong and edited by Nguyen Quang Vu.

New definitions

Decree 2/2022 introduces definitions for various vague legal terms that are frequently used in the Real Estate Affairs Act 2014, such as real estate made available for sale (bất động sản đưa vào kinh doanh), real estate project (dự án bất động sản), or real estate trading contracts (hợp đồng kinh doanh bất động sản). The new definitions could facilitate a more consistent interpretation of the various regulations of the Real Estate Affairs Act 2014 and Decree 76/2015.

Obligation of disclosure by a real estate developer

Under Decree 2/2022, a real estate developer will have to make various public disclosures about their real estate projects. In particular, the following information must be made available on the promoter’s website, at the headquarters of the project management committee (in case of an investment project to do real estate business), or at the real estate trading floor (in case of doing real estate business via public prosecutor’s office):

  • information on real estate offered for sale;

  • information about the mortgage of the house, construction works and properties offered for sale (if applicable); and

  • information about the amount, type of (1) real estate available for sale, (2) real estate that has been sold, transferred, leased and remaining real estate available for sale; and

  • any changes to the above information.

New Thin Capitalization Rule for Property Developers

Under Decree 2/2022, the real estate developer must have equity capital for the realization of the real estate project equal to at least 20% of the total investment in the event of the project using less than 20 hectares of land; or at least 15% of the total investment in the event of a project using 20 hectares of land or more.

This requirement appears to extend the requirement of Decree 43 implementing the Land Act 2013 on the financial capacity of investors selected as developers of real estate projects and leasing land from the government. Indeed, the requirement of Decree 2/2022 seems to apply to all types of real estate developers, regardless of the sources of the land use rights of these developers. For example, a real estate developer who subleases land to another developer (eg an industrial estate developer) will also need to comply with this requirement.

Decree 2/2022 also introduces methods to determine investors’ satisfaction with the financial capacity requirement. Specifically,

  • with respect to the promoter being an existing business, the minimum threshold of investment capital held by the promoter will be determined based on the result of its latest audited financial statements or the result of the latest independent audit report that has been formulated in the current year or the previous year; and

  • with respect to the developer being a newly incorporated company, the minimum threshold of investment capital held by the investor will be the actual statutory capital contributed by the founding shareholder(s) in accordance with the law.

Model contracts for real estate transactions

Decree 2/2022 now requires that transactions involving real estate be established in accordance with the standard contracts provided for in Decree 2/2022. Decree 2/2022 provides for the following types of standard contracts:

  • Contracts for the sale and purchase of apartments;

  • Contracts for the sale and purchase of private houses;

  • Contracts for the sale and purchase of Condotel and officetel apartments;

  • Rental contracts for residential houses or construction works;

  • Land lease/sub-lease agreements; and

  • Real estate project assignment contract.

Previously, under Decree 76/2015, the use of regulated model contracts for real estate transactions was only optional and the contracting parties could modify the model contracts as long as the signed transaction documents contain all the crucial contents required by the law. While Decree 2/2022 allows real estate contracts signed before March 1, 2022 to remain valid, it is unclear whether amendments to these contracts should follow the model contracts attached to Decree 2/2022.

In the absence of such similar regulation under Decree 2/2022, it is not clear whether an agreement that does not comply with the regulated standard contract could be declared invalid under the law. Indeed, under the Civil Code 2015, the regulated contract model is not a condition for a civil transaction to take effect. That said, Decree 2/2022 seems to suggest that in the event that the parties are required to submit the signed contracts for the completion of legal proceedings, the competent authorities may reject transaction documents that are not drawn up in accordance with the regulated forms. .

Unless standard form contracts allow for modification and variation by the parties, the new standard real estate contract requirements could place significant restrictions on how a real estate developer conducts business.

Conditions of transfer of contract of sale and purchase/rental and purchase of real estate

Decree 2/2022 imposes new conditions for the transfer of contract of sale and purchase/rental and purchase of residential house off plan (nhà ở hình thành trong tương lai) and lease and purchase contract for existing construction works. Specifically,

  • the assignor must have a sale-purchase/lease-purchase contract drawn up in accordance with the regulated model contract, unless the contract was signed before March 1, 2022;

  • there is no dispute, claim arising from the contract of sale and purchase/lease and purchase; and

  • the house or building that is the subject of the contract is not seized or mortgaged to secure the performance of obligations according to law, unless the mortgagor agrees otherwise .

If the purchaser of the contracts mentioned above is another property developer, then the purchaser being another property developer must notify this transfer of contracts in writing to the local housing authority. The notice must include information on the name, address of the real estate project, the transferor of the contract, the number of transferred contracts and the number of houses, buildings under these transferred contracts. This is a new requirement that appears to allow authorities to obtain more information about the sale of real estate products on the market.

Real estate project transfer procedures

Under Decree 2/2022, the transfer of part or all of the real estate projects may have to follow two separate sets of legal procedures. Specifically,

  • with respect to real estate projects whose (1) developers have been approved, or (2) investment registration certificates (IRC) have been issued in accordance with the Investment Act 2020, the transfer of such projects real estate will follow the procedures to transfer the investment project of the investment law 2020; and

  • with regard to real estate projects that do not fall within the cases mentioned above, the transfer of this real estate project will follow the procedures provided for in Decree 2/2022.

With regard to the transfer of real estate projects under Decree 2/2022, Decree 2/2022 obliges the transferring investor to submit the following additional documents to the competent authorities when requesting such a transfer of the real estate project:

  • a draft contract for the transfer of part or all of the real estate which is drawn up in accordance with the form prescribed by Decree 2/2022;

  • the documents attesting to the completion of the clearing work; and

  • documents evidencing the completion of the construction of infrastructure works in accordance with the project schedule in case of transfer of entire infrastructure construction projects.

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