The Government recently released Decree No. 02/2022/ND-CP detailing the implementation of a number of articles of the Law on Real Estate Business ("New Decree"). This New Decree provides updated legal requirements, particularly those concerning the conditions for organizations and individuals conducting real estate business; templates for real estate contracts; transfer of lease-purchase contracts for existing houses and construction works; transfer of sale contracts and lease-purchase contracts for residential houses to be built in the future; and transfer procedures for the whole or part of a real estate project. This New Decree takes effect on 1 March 2022 and replaces Decree No. 76/2015/ND-CP dated 10 September 2015 ("Decree No. 76").
- Key takeaways
- In more detail
The New Decree provides the following key updates:
- Real estate enterprises must publicize their updated business information on their websites. Updated information on real estate properties, including mortgaging status, quantity and type of real estate products transacted under such businesses, must also be published on the enterprises' websites or trading floors.
- An investor must fulfill detailed financial capacity requirements to be selected as the developer of a real estate project.
- New templates for the sale, lease-purchase as well as the lease of properties (including residential house, constructions works, apartment, tourist apartment and officetel); templates for the transfer, lease or sub-lease of land use rights; and templates for the transfer of the whole or part of the real estate projects have been provided. These templates must be used in all real estate transactions.
- New guidance regarding the type of project transfers that must refer to the New Decree, including the relevant procedures and dossiers, has been released.
In more detail
The New Decree specifies conditions for conducting real estate business
Under the New Decree, organizations and individuals engaging in real estate business must satisfy the following conditions:
- Such organizations and individuals must establish an enterprise in Vietnam in accordance with the laws on enterprises or cooperatives, and must register its real estate business lines. The New Decree also specifies certain real estate activities that do not constitute the business of trading real estate, and are thus exempted from having to form an enterprise. The New Decree replaces and clarifies the old rule under Decree No. 76 that applied the same exemption to family households or individuals who sell, transfer, lease out or grant hire purchase of real estate considered a real estate investment project for business purposes with a total project investment of less than VND 20 billion. Under the new rule, if such households or individuals carry out a real estate project for business purposes of any scale, they may be subject to the same conditions for conducting real estate business.
- In relation to the financial capacity of the investor, the New Decree reconfirms the 2020 Investment Law's removal of the VND 20 million minimum charter capital requirement for a real estate business company. The New Decree also takes a more realistic approach to the investor's proof of financial capacity, as also provided under Decree No. 43/2014/ND-CP dated 15 May 2014, which outlines a number of articles of the Land Law. Specifically, under the New Decree, if an investor is selected as the developer of the real estate project in accordance with the laws, such investor must have owner's equity of: (i) not less than 20% of the total investment capital applicable to projects using less than 20 hectares of land; or (ii) not less than 15% of the total investment capital applicable to projects using at least 20 hectares of land. Furthermore, the New Decree also stipulates that the owner's equity must be determined by way of the enterprise's latest audited financial statements or independent auditing report of the operating company for the current or preceding year. In the case of a newly established company, the owner's equity is determined by the contributed charter capital in accordance with relevant laws.
- Certain information on the real estate company must be publicized, including: name, head office address, contact phone number, name(s) of legal representative(s) and information related to the properties to be put into business; information on mortgage of the house, construction works and/or real estate project put into business (if any); information on the quantity and type of real estate products put into business; the quantity and type of real estate products sold, transferred, and lease-purchased; and the remaining quantity and types of products that are still being traded. If the publicized information changes for any reason, the changes must promptly be updated.
Contract templates for real estate transactions
With regard to real estate business contracts, the New Decree provides templates for a number of types of contracts (as stated in the Schedules of the Decree), such as the following:
- Apartment sale and lease-purchase
- Tourist apartment and officetel sale and lease-purchase
- Detached house sale and lease-purchase
- Other contracts for sale and lease-purchase of houses, and construction works not classified above
- Contracts for lease of house, construction works
- Contracts for transfer of land use rights
- Contracts for lease or sublease of land use rights
- Contracts for transfer of the whole (or a part of) the real estate project
Notably, real estate contracts are expressly required to follow the templates in the New Decree, as opposed to the templates in Decree 76 that are only for reference. In addition, the New Decree provides templates for tourist apartment and officetel sale and lease-purchase contracts, which is encouraging news for the condotel/second-home market. Accordingly, much of the contents of these new templates provide more clarity and detailed guidelines on trading this specific product type. In addition, the template provides a certain flexibility for developers to create their own templates to suit their specific business plans or sale programs. We will issue another client alert to analyze these new templates in detail.
Transfer of real estate projects
To keep consistent with the 2020 Investment Law, the New Decree specifies cases where the transfer of a part or the whole of a real estate project would be subject to real estate regulations (including the New Decree). As such, the following types of projects will be subject only to the Investment Law:
- Projects that have been granted the Investment Registration Certificate under the 2020 Investment Law (which is the case for foreign-invested projects after 17 June 2020)
- Projects whose investors have been selected in accordance with the 2020 Investment Law, as follows:
- The investor was directly appointed in the case of land use rights auction or competitive bidding, with the investor being the only participant/bidder who met the conditions under the relevant regulations
- The investor was selected without going through the procedure for land use rights auction or competitive bidding respectively, including those:
- with land use rights, except in cases where land is reclaimed by the State for the purpose of national defense, socio-eco development, and in accordance with the land laws
- receiving transfer/capital contribution or leased agricultural land for non-agricultural purposes and not subject to land reclamation by the State in accordance with the land laws
- carrying out projects within hi-tech zones or industrial parks
For those few projects that are not within the ambit of the 2020 Investment Law (i.e., the above cases), the New Decree and related real estate regulations will apply in the case of transfer of a real estate project. In these cases, the New Decree requires the parties to send to the authorities: (i) a request for real estate project transfer (the template for which is provided under the New Decree); (ii) a draft contract for the transfer; (iii) notarized copies or copies accompanied by originals for reference of approvals/licenses/permits in relation to the real estate project to be transferred; and (iv) a report on the project's execution (the template for which is provided under the New Decree).
In short, there should be less confusion as to which law would apply (i.e., the New Decree or the decrees guiding the 2020 Investment Law).
With regard to the collection of opinions on the appraisal of project transfer documents, the New Decree defines more clearly the responsibilities of the authorities in charge of collecting opinions, the participating authorities, and the appraisal period and contents of appraisal opinions to be collected. Most of all, the New Decree also includes a timeline for the opinion collection process that helps parties estimate transaction timelines as a whole.