In Part 1 of the article, the author mentioned the participation of different parties in a real estate M&A transaction and The transaction option whose object is the capital contribution/share of the enterprise. In this section, the author will give opinions on the transaction option whose object is a real estate asset or a real estate project.
1. M&A transactions by transfer of real estate projects.
The transfer of a real estate project means the transfer of part or the whole of the real estate project by an investor to another investor for further investment in business when satisfying the conditions prescribed by law regulations.
In order to carry out the M&A of a real estate project by the real estate project transfer, the real estate project, the transferor and the transferee must meet the following statutory conditions:
Conditions for real estate projects eligible for transfer:
- After the project transfer, the project’s objectives and contents must not be changed. Ensure interests of clients and the involved parties upon the project transfer;
- The transferred project has already been approved by a competent state agency with detailed planning of 1:500 scale or the approved general plan planning;
- The compensation and ground clearance for the transferred project or part of the project have been completed;
- For the transfer of the entire infrastructure construction project, construction of technical infrastructure works must be completed corresponding to schedules of the approved project;
- The project is free from land use right dispute, is not distrained for judgment execution or execution of administrative decisions of competent state agencies;
- Not be subject to project revocation or land recovery under decisions of competent state agencies; if there are violations during the project implementation, investors must complete the execution of sanctioning decisions;
Attention: Conditions for the transfer of projects on investment in the form of public-private partnership (PPP) are specified in Article 43 of the Decree No. 63/2018/ND-CP
Conditions for investors transferring and investors acquiring real estate projects (Article 49 of the Law on Real Estate Business)
Investors transferring real estate projects
- Have possessed the certificate of land use rights over the whole or part of the transferred projects;
- Have fulfilled their financial obligations related to land of the projects;
Investors acquiring real estate projects
- Be real estate business enterprises;
- Have sufficient financial capacity;
- Make commitments to further invest in construction and business in accordance with law regulations, ensuring schedule and contents of the projects.
If the above conditions are satisfied, the parties to the project transfer transaction must carry out procedures for the permissions to transfer the real estate projects. Accordingly, the competence to permit the transfer of real estate projects is prescribed as follows (Article 50 of the Law on Real Estate Business and Point b, Clause 2, Article 75 of the Law on Investment):
- For real estate projects having investors approved or investment registration certificates granted in accordance with the Law on Investment, the competence and procedures for transferring the whole or part of such projects must comply with the Law on Investment;
- For real estate projects other than those having investors approved or investment registration certificates granted in accordance with the Law on Investment, the competence to permit the transfer is specified as follows:
- Provincial-level People’s Committees shall decide to permit the transfer of the whole or part of real estate projects, for projects in which the investment is decided by provincial-level People’s Committees;
- The Prime Minister shall decide to permit the transfer of the whole or part of real estate projects, for projects in which the investment is decided by the Prime Minister;
Project transfer contracts may only be concluded after obtaining the approval of transfer by the above-mentioned competent state agencies on a case-by-case basis. The basic process for transferring a real estate project shall be as follows:
Step 1: The transferor shall submit a dossier of application for approval of the transfer to the competent agency;
Step 2: The competent agency shall collect opinions and appraise transfer conditions;
Step 3: Issue a decision to permit the transfer;
Step 4: The transferor and the transferee shall sign the transfer contract and perform the transfer contract as well as works to complete the transfer and handover of the project.
Main contents of contracts on transfer of a real estate project must comply with Article 53 of the Law on Real Estate Business.
Attention: During the implementation of M&A transactions for real estate projects, a real estate project may fall into one of the following cases. Depending on each case, the parties to the transaction shall consider choosing the appropriate transaction plan and transaction conditions:
- The real estate project already has land but have not had an investment project;
- The investment project has been approved but the land has not been cleared
- The investment project has been approved, the land has been cleared, but the infrastructure construction has not been deployed;
- The infrastructure construction of the project has been implementing in conformity with the project schedule, the foundation has been completed;
- The project is under construction but has not yet completed;
- The construction is completed.
2. M&A by purchase of properties being real estate. For example: land, factories, buildings, hotels, etc.
Such M&A shall be performed via the real estate purchase/transfer contracts.
The conclusion of a real estate transfer contract may comply with notarization procedures (in cases where the notarization is required by law regulations) and procedures for property ownership registration or transfer at a competent state agency.
After the transfer of real estate has been completed, the parties to such transaction shall conduct the tasks to put the real estate to further business as follows: Re-sign contracts with related parties (partners, customers, employees, etc.), request for grant of new licenses, amendment of licenses, dissolve related companies.
The M&A by the method of purchasing properties has some advantages and disadvantages compared to other transaction methods, to be specific:
- Focus on interests and property holding;
- Eliminate potential risks that the purchaser may not perceive clearly;
- Avoid problems related to shareholders/members compared to the capital/share purchase;
- The real estate to be transferred must have a certificate or be eligible for transfer in accordance with regulations.
- Administrative procedures are complicated, cumbersome and laborious.
- There may be restrictions on ownership, especially in transactions involving foreign investors.