On 28 November 2023, the National Assembly of Vietnam officially passed the Law on Real Estate Business, replacing the Law on Real Estate Business 2014. The new Law on Real Estate Business 2023 is expected to remove some limitations as well as create a more reasonable legal framework for real estate investment and business activities in Vietnam. The Law on Real Estate Business 2023 will take effect from 01 January 2025.

This update will highlight the noteworthy changes of the Law on Real Estate Business 2023 compared to the Law on Real Estate Business 2014.

1. Clarity on more narrow scope of regulation

The new Law on Real Estate Business 2023 clearly excludes certain cases of real estate ownership transfer from its scope of regulation, which will be governed by other laws. Such cases are seemingly cases where real estate is transferred not for large scale business purpose and include:

  1. Authorities or organizations that sell housing or buildings and/or transfer land use rights (LURs) in case of bankruptcy, dissolution, splitoff, or split-up; transfer ownership of housing or buildings and/or LURs in case of split-off, splitup, consolidation, or merger under regulations of law;
  2. Authorities, organizations, or units that sell, transfer, or lease real estate which is public property under regulations of law on management and use of public property;
  3. Organizations or individuals that sell housing or buildings or transfer LURs according to judgments or decisions issued by competent courts or arbitration awards or decisions, or decisions issued by competent authorities when settling disputes; and
  4. Organizations or individuals that transfer, lease, or sublease LURs, except investors that transfer, lease, sublease rights to use land that already has infrastructure within real estate projects; and
  5. Leasing of social housing to workers and employees by the Vietnam General Confederation of Labor (VGCL) which acts as the supervisory authority of such social housing projects under regulations of the Housing Law.

2. Additional property types and real estate products

The new law lists out the following property types/ real estate products that can be traded on the market:

  1. Existing residential houses and houses to be formed in the future;
  2. Existing works and works to be formed in the future, serving "educational, medical, sport, cultural, commercial office, services, tourism, accommodation, industrial" purposes and mixed-use works;
  3. "Separate floor areas" within construction works;
  4. Land use rights with technical infrastructure in a real estate project; and
  5. Real estate projects.

The most noteworthy items are items ii and iii, which are new additions in the new law. They appear to be added to address market practices. For "separate floor areas" within construction works to qualify for putting on the market, the following stringent conditions must be met, among others:

  • Land-related financial obligations arising from the floor area, including land use fee, land rent and other relevant taxes, fees and charges (if any), towards the State which must be fulfilled by the seller or landlord or the buyer or tenant-buyer of such floor area must be clearly determined and specified in the relevant commercial agreement between the parties;
  • The area to be transferred must have a dedicated function and be clearly demarcated/ separated from other areas in accordance with the construction design and planning of the project so that the owner can manage the area independently; and
  • The land on which the building is built is allocated by the State with land use fee collection or leased by the State with lump sum land rent payment.

We expect that there will be technical uncertainties during the implementation of the new law concerning the conditions above. Further guidance from the Government will be needed.

3. Scope of real estate business for foreign investors clarified to be consistent with Law on Investment

The new law replaces the term "foreign-invested enterprise" (doanh nghiệp có vốn đầu tư nước ngoài in Vietnamese) with "foreign-invested economic organization" (tổ chức kinh tế có vốn đầu tư nước ngoài in Vietnamese) for consistency with the Law on Investment.

To ensure consistency with the Law on Investment, the new Law on Real Estate Business provides a more limited scope of real estate business activities for economic organizations that are required to meet conditions and conduct investment procedures applicable to foreign investors under the Law on Investment. Such activities include only:

  • Investing in a real estate project for the construction of new works or infrastructure for sale, lease or sublease;
  • Leasing existing real estate properties for sublease; and
  • Receiving transfer of real estate project.

4. Conditions for real estate developers and investors

Under the new law, to engage in real estate business activities for profit, organizations and individuals must incorporate a company and register business line of doing real estate business (real estate business company). Exceptions to the aforementioned requirement include: (i) individuals doing "small-scale" sale or leasing transactions; or (ii) organizations or individuals doing sale of real estate properties not for business/profit-making purposes or below "small-scale".

There is no minimum fixed charter capital requirement applicable for real estate business companies. However, real estate business companies must meet the following financial requirements:

  • Maintain acceptable credit debt/bond debt to equity ratio;
  • When a real estate business company conducts business through a real estate project, the owner's equity must not be lower than 20% of total investment capital if the area of project land is under 20ha, or must not be lower than 15% if the area of project land is 20 ha or more (in case the company is developing multiple real estate projects, the owner's equity must ensure the above percentage for each individual project).

5. Regulation of overseas Vietnamese

The new law specifies different scope of real estate business activities for overseas Vietnamese individuals, based on whether the individual still retains Vietnamese legal nationality. Overseas Vietnamese who are not Vietnamese citizens (no longer have Vietnamese nationality) are entitled to do real estate business within the scope specified in Article 10.3 of the Law on Real Estate Business 2023 which is more limited than overseas Vietnamese that are Vietnamese citizens.

6. Transactions involving off-the-plan properties (i.e., properties to be formed in the future)

a. Deposit in off-the-plan real estate business

For regulations on deposits in off-plan real estate business, the Law on Real Estate Business 2023 has resolved the shortcomings of the Law on Real Estate Business 2014, through which the real estate project investor may receive the deposit for the housing or building or its floor area which has met relevant conditions for putting on the market as set out in this Law from the buyer or tenant-buyer provided that the received deposit shall not exceed 5% of the selling price or lease purchase price.

The addition of this regulation on deposit shows an effort to strictly control the time of receiving the deposit and the amount of the deposit of the investor

b. Conditions for putting off-the-plan real estate on the market

Compared to the previous law, the Law on Real Estate Business 2023 has added several new conditions to put off-plan housing and buildings on the market, including:

  • The housing or building is located in a real estate project that has been approved by a competent authority as prescribed by law, and the construction of housing or building for sale or lease purchase is included in the approved contents of such a project;
  • Information on the real estate and real estate projects to be put on the market has been properly disclosed;
  • The project investor has fulfilled financial obligations on land including the land use levy, land rent, and land-related taxes, fees, and charges to the State; and
  • Having one of the types of documents on Land Use Right that is not required to have a Certificate of land use right, ownership of houses, and other assets attached to land.

c. Guarantee for sale or lease purchase of off-the plan housing

To strictly control and avoid the appearance of "ghost projects" as well as allow the parties to flexibly choose in negotiating on guarantee, the Law on Real Estate Business 2023 has made the following changes:

  • Replacing the provision "The investor shall send the copy of guarantee agreement to the buyer or lessee when the agreement on sale or lease purchase is signed" with the provision that the Investor is responsible for sending a copy of the written commitment to issue a letter of guarantee from the bank to all buyers, The lessee purchasing housing under the project shall be approved to grant a guarantee when signing a contract for sale, lease, and purchase of housing formed in the future; 
  • Supplementing regulations on the buyer or tenant-buyer can choose whether there is a guarantee for the investor's financial obligations to them. If the guarantee is refused, the buyer or tenant-buyer shall agree in writing at the time of signing the Contract;
  • The investor may only receive payments from the buyer or tenant-buyer under terms and conditions of the signed contract for the sale and purchase or lease purchase of off-plan housing after the investor has delivered the bank's letter of guarantee to the buyer or tenant-buyer

7. Transactions involving land with infrastructure

This provision has been added in Article 31 of the Law on Real Estate Business 2023 to be consistent with the Law on Housing passed on 27 November 2023, specifically allowing the transfer of land use rights to individuals building their houses in areas "not located in any ward, urban district, or city of a special-class or class-I, II or III city; not put up for sale in an auction for constructing a housing investment project as prescribed by the Land Law".

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.