On 1 July 2015, the Law on Housing No. 65/2014/QH13 (2014 Housing Law) and the Law on Real Estate Business No. 66/2014/QH13 (2014 Real Estate Law) passed by the Vietnam National Assembly on 25 November 2014 will come into effect. The new legislation looks set to address the needs of a developing real estate industry in Vietnam, giving foreign individuals and entities more opportunities to access property and develop businesses in the real estate sector. We summarise the key changes below.
Land in Vietnam is considered to belong to the Vietnamese people collectively and the state is responsible for the administration of land on their behalf. As a consequence, no individual person or corporate entity can acquire ownership of land. Instead, Vietnam law provides for the ownership of a right to use land whose duration and purpose is determined by the state (commonly referred to as land use rights).
Up until now, only Vietnamese individuals or companies could be granted a land use right. A foreign-invested enterprise could own a land use right if a Vietnamese partner contributed to its share capital in a joint venture. Other than this, foreign investors could only lease land use rights for a lump-sum payment or an annual rent. The duration of the lease could not exceed 50 years (or 70 years in special circumstances).
A building, house, or apartment constructed on land may be owned where a person has a Certificate of Land Use Right and Ownership of House and Other Assets on the Land. Until the entry in force of the 2014 Housing Law, very limited categories of individual foreigners and foreign entities could be owners of a house.
New real estate ownership rules
a) Foreign Individuals
Under the 2014 Housing Law, foreign individuals who are permitted to enter Vietnam with entry visas will be entitled to buy and own residential houses, as well as use, sell, mortgage, or inherit the residential houses.
In addition, foreigners will be permitted to purchase houses for letting under the 2014 Housing Law. Foreign owners will be required to notify their local housing administration authorities prior to letting. Foreign individuals must also pay tax in accordance with prevailing laws.
The law does not impose any restrictions on the number of residential properties that a foreigner can buy in Vietnam. However, a foreigner is limited to ownership of up to 30% of the total number of units in an apartment building and up to 250 residential houses in a ward administrative unit. The period of house ownership is 50 years, with the possibility of an extension. Foreign individuals who are married to a Vietnamese person are entitled to long term home ownership.
b) Foreign Companies
Foreign invested enterprises, branches and representatives of foreign enterprises, foreign investment funds, and branches of foreign banks which are licensed to operate in Vietnam shall be allowed to buy and own houses under the 2014 Housing Law.
The period of house ownership for these foreign companies cannot exceed the period stated in their respective investment certificates.
New real estate business rules
The 2014 Real Estate Law prescribes a detailed definition of “real estate business”, which includes:
- investment of capital in order to implement construction, purchase, or receipt of a transfer in order to sell or transfer;
- lease, sub-lease, or purchase-lease real estate;
- carry-out real estate services;
- real estate trading floor services; and
- real estate consultancy or real estate management services for profitmaking purposes.
Foreign developers are likely to benefit in a number of ways from the liberalisation of the real estate market in Vietnam. First, foreign companies (and individuals) are permitted to purchase constructed facilities for use as head offices or working offices, or for production, business, or service functions. Furthermore, developers can now lease out houses and buildings.
Second, real estate investors who wish to sell or lease out residential houses before the completion of their construction must secure a guarantee from an authorised bank for the sale or lease. This provides protection to the purchaser or the lessee in the event that the foreign developer fails to deliver the residential houses. The purchaser or lessee may request the guarantor to return the advanced payment and other sums that they have made to the foreigner developer.
Third, any organisation or individual who wishes to undertake real estate activities must establish an enterprise, and the minimum legal capital requirement for such a company has been increased from VND 6 billion to VND 20 billion (approximately S$365,000 to S$1,200,000). It is not yet clear whether this minimum capital requirement will also apply to real estate consultants and service providers. If so, the relatively high amount could prove prohibitive. However, organisations, family households, and individuals who sell, transfer, lease out, or grant hire purchase of real estate on a smallscale basis are not required to establish an enterprise and, as a result, will not be subject to the minimum share capital requirement.
Under the former regulations, foreign developers could only transfer the whole of a residential project, an industrial zone, or an urban zone project to another developer. The 2014 Real Estate Law permits foreign developers to transfer part of a project, subject to certain qualifications: the transfer must not cause the objectives of the project to be changed, and must not be prejudicial to the interests of third parties; furthermore, the project must be approved by the competent authority with a detailed master plan at 1/500 scale. Land compensation and site clearance must also be completed for the whole or a part of the project.
Under the former legislation, foreign real estate investors were subject to a minimum construction floor area (MCFA): 45 square metres for an apartment and 50 square metres for a terraced house. These restrictions have been abolished under the 2014 Housing Law. Foreign developers will have the discretion to decide on the MCFA according to the detailed construction zoning plan and the investment approval of the project.
Finally, the requirement for the conduct of real estate transactions on a prescribed trading platform has been abolished. Parties to a transaction may now determine if the trading platform shall be used for the sale, assignment, or lease of the property, and thereby reduce the burden of administrative procedures.