On 25 November 2014, the National Assembly passed the Housing Law and the Law on Real Estate Business. The passage of these two laws regarded as a long-awaited legislative breakthrough that establishes a transparent legal framework to meet the changing needs of Vietnam’s real estate market. The two laws will take effect on 1 July 2015 and are expected to have a positive impact on the real estate market. Hereunder are some of the most significant changes under the new laws:
Opening the Door to Foreign Entities and Individuals to Purchase Residential Properties
Five years ago, the National Assembly passed Resolution 15, which allowed some foreigners to purchase houses. However, under that resolution, a foreigner could only purchase one condominium apartment in commercial housing projects for a period of no more than 50 years; the houses purchased could only be used for residing and not for leasing, office use or other purposes; and the types of persons or entities entitled to purchase houses were limited.
Under the 2014 Housing Law, broader categories of individuals and entities are entitled to purchase houses, including the following:
- Investors with residential house construction projects in Vietnam;
- Foreign-invested enterprises, branches and representative offices of foreign enterprises, foreign investment funds and branches of foreign banks operating in Vietnam; and
- Foreigners permitted to enter Vietnam.
Under the 2014 Housing Law, any foreigner with an entry visa is authorised to purchase a house, and practically almost forms of investment by foreign entities are permitted. For foreign individual, the house ownership period is 50 years and can be extended. For foreign entities, house ownership shall not exceed the period stated in the investment certificate, including extensions of the term operating in Vietnam. The law also permits foreigners to purchase houses for leasing purposes.
The individuals or entities mentioned above may purchase, lease-purchase, receive as a donation or heritage, or possess not more than 30 percent of the apartments available in a condominium. For separated residential houses, including villas and attached houses in a population area equivalent to a ward administrative unit, the permitted subjects may purchase, lease-purchase, receive as a donation or heritage, or possess up to 250 houses.
Rights of Foreign Entities and Individuals to Purchase Offices and Factories; Rights of Foreign-Invested Enterprises to Lease Offices for Lease-Out Purposes
The 2014 Law on Real Estate Business permits foreign entities and individuals to purchase constructed facilities for use as a head office, working office, or production/business/service undertakings in conformity with their functions. Foreign-invested enterprises may also lease constructed facilities for leasing purpose.
With these updates, the 2014 Law on Real Estate Business is regarded as introducing positive changes that meet the practical market demands in the real estate sector.
Guarantee for Sale or Lease-Sale of Residential Houses to Be Built in the Future
Before they can sell or lease out/sell residential houses that have yet to be built, investors in real estate projects must be guaranteed by credit institutions licensed to operate in Vietnam for such sale and lease out/sale so that, should they fail to hand over residential houses as agreed in the sale, lease out/sale contract, the purchaser or the lessee- purchaser may ask the guarantor to return the advances and other payments they have made to the investors.
The new law marks the first time that regulations on guarantee for sale of future construction are part of the law. These regulations will help house purchasers feel more secure in their transactions, help identify capable investors and eliminate the improper appropriation of the purchasers’ monies when construction progress lags, as has commonly occurred in the past.
Legal Capital Requirements for Real Estate Investors
The 2014 Law on Real Estate Business stipulates that the legal capital requirement to engage in the real estate business shall be determined by the government but shall not be less than VND20 billion. This requirement is considerably higher than the legal capital requirement of VND6 billion under the current laws. However, as today’s real estate projects require large capital investments, the law’s adjustment of the legal capital requirement is reasonable as a first step in eliminating real estate investors who do not have sufficient financial resources.
Real Estate Transactions Without Trading Platforms
The current laws stipulate that entities and individuals conducting real estate business must sell, assign, lease out or lease out/sell their real estate on the trading platform. In the 2014 Law on Real Estate Business, whether or not transactions are conducted via trading platforms will be subject to agreement among the entities and individuals conducting the transaction and the trading platforms, and not mandatory as under the current laws. This provision will reduce certain procedures in real estate transactions.
Assignment of the Whole or Part of a Real Estate Project
While investors under the current laws may only assign the whole of a housing project, an industrial zone infrastructure project or a new urban area project to another investor, the 2014 Law on Real Estate Business permits an investor with a real estate project (not limited to the three above types as in the current laws) to assign the whole or part of such a project to another investor for the latter’s continued investment. The assigned project must satisfy certain conditions, as stipulated, must not change the objectives and contents of the project, and must protect the interests of the customers and interested parties.
No Restrictions on Minimum Areas of a Residential House
Under the current laws, the minimum construction floor area of each condominium apartment shall be 45m2; the minimum area of an attached house shall be 50m2, with the front width not less than 5m; and, for a villa, the height must not be more than 3 floors and the construction area must not be more than 50 percent of the land area.
Under the 2014 Housing Law, the standard area of each commercial residential house shall be as decided by the project investor in conformity to the detailed construction zoning plan, the construction standards and regulations, and the document approving the investment project. As such, the minimum area for each house type shall be decided by the investors themselves and not be regulated by the 2014 Housing Law.