Introduction

On 23 June 2010, the Government of Vietnam promulgated Decree No. 71/2010/ND-CP (“Decree 71”) guiding the implementation of the Law on Residential Housing dated 29 November 2005. Decree 71 will take effect on 8 August 2010 and will replace Decree No. 90/2006/ND-CP (“Decree 90”) of the Government dated 6 September 2006.

Decree 71 has incorporated several guiding documents including circulars and official letters issued by the relevant authorities providing guidance on Decree 90. In addition, Decree 71 will introduce the following key changes:

Types of residential house development projects

Decree 90 mentions very briefly the types of projects for development of residential housing but does not offer further explanation on it. Decree 71 provides more clarity with respect to commercial residential housing, which includes the following two types:

  1. Investment in and construction of technical and social infrastructure, residential houses and other architectural works pursuant to approved zoning plans which are collectively known as the residential housing development project at primary level, meaning that technical infrastructure shall be invested and constructed by primary project developers. On the other hand, residential houses and other architectural works and projects at secondary level shall be invested and constructed by primary or secondary developers; and
  2. Investment and construction of a separate residential house work or a group of residential house works, including residential house works with mixed purposes for residence, office, trade centers and services which are collectively known as residential housing work with mixed purposes. This would mean development on land already having technical infrastructure. This too would be classified as project at secondary level as stipulated in item (i) above or project in new urban areas, or a separate residential house work in improved urban areas.

This classification provides clarity and is consistent with the variety of development of residential housing projects in Vietnam.

Approval of Prime Minister

Residential housing projects which have a total of 2,500 residential housing units (including villas, individual houses, apartment buildings, new urban zones and the mixed use projects) require approval from the Prime Minister (irrespective of the source of funding and land use scale for such residential housing projects). Further, any amendments to the investment objectives, project scale, land use area, number of residential houses, project implementation schedule for residential projects which have already been approved shall be subject to the approval of the Prime Minister. This is a new administrative procedure for such project developments.

Financing of the residential housing projects

Decree 71 provides further clarification on capital sources for development of commercial residential housing by setting out an explanation for each form of mobilisation of capital. Developers of residential housing development projects at primary level shall be able to mobilise capital as follows:

  1. by way of loan agreements with credit institutions, investment funds or issuance of bonds;
  2. by way of contracts for capital contribution or business cooperation contracts with the secondary developer. The secondary project developer shall be permitted to mobilise the capital for developing the project located on the designated land area assigned from the primary project developer;
  3. by way of contracts for capital contribution or business cooperation contracts with organisations and individuals. Such investors may receive profits (in cash payment or shares) or receive the completed residential units as agreed with the developer of such projects;
  4. by way of business cooperation contract with enterprises which function as a real estate business. The distribution of profits may either be by way of cash payment, share or completed residential units; and
  5. by way of receiving advance payments from eligible organisations and individuals who can own and purchase residential housing in Vietnam.

However, Decree 71 also provides certain restrictions on the above options.

  1. With respect to mobilisation of capital by way of item (i) above, the lender(s) or the bond purchaser(s) shall not be permitted to have any priority to purchase or place reservation in purchasing the residential units.
  2.  As regards item (ii) above, such mobilisation is only possible on condition that the land has already been developed with the necessary technical infrastructure by the primary project developer.
  3. Distribution of profits by way of receiving completed residential units in accordance with items (iii) and (iv) above shall only be available to investors which are eligible to own homes in Vietnam and the residential units so distributed may not constitute more than 20% of the total units in such projects. This 20% will be exempted from the requirement of sale through a trading floor.
  4. Decree 71 sets out the following conditions to be fulfilled before advance payment can be received from eligible organisations and individuals in accordance with item (v) above:
    1. the projects have been approved by the relevant authorities;
    2. the foundation of the projects (including but not limited to the residential housing projects with mixed use purpose) has been completed. Decree 71 has also provided that “foundation” of a construction work means the part created at the lowest level of the construction work lying underground and “completed construction of the foundation” means the completion of the foundation girths (including the foundation treatment, if any) up to the lowest elevation of the construction works, which is inspected in accordance with the construction law; and
    3. the sale and purchase of the residential units via the trading floor has been completed
  5. Decree 71 also sets out that developer of the residential housing projects which conducts the mobilisation of capital by way of items (ii), (iii), (iv) or (v) above shall be obliged to send a notice to the relevant provincial Department of Construction specifying the method of mobilisation of capital at least fifteen days prior to the date of signing of the contracts effecting the mobilisation of capital.

Common Areas and Private Areas

Common areas and private areas in the apartment buildings are discussed at length too. Specifically, Decree 71 sets out that parking space/area used for motorcycles, bicycles and vehicles for the disabled shall be under the common ownership of the apartment users; whereas parking space/area for cars shall either be under the common ownership of the apartment users or under the private ownership of the apartment users as determined by the developer of the apartment building.

Conclusion

Decree 71 would seem to be an effort to consolidate all the legislation relating to residential housing in general while providing clarity on various issues directly affecting developers in Vietnam. The clarification on completion of foundation works and clarification of parking spaces have been long overdue. The requirement for Prime Minister’s approval could potentially be a major stumbling block for large scale developments. As with all legislation, the effectiveness of Decree 71 will very much depend on how the authorities seek to implement the new provisions.