On June 29 2006, the National Assembly passed the Law on Real Estate Businesses, which then came into force on January 1 2007.
This Law has the advantage of defining all of the rules applicable to real estate businesses in a single legal instrument.
It will facilitate the more harmonious development of the market in Vietnam and better structuring of supply in a market where demand is still on the increase.
Firstly, real estate is, according to the Law on Investment, one of the sectors in which investment is subject to conditions, regardless of the capital source. Accordingly, all real estate projects are subject to a review and approval procedure leading to the issue of an investment certificate.
Real estate assets
The Law applies to businesses involving the following real estate assets:
- residential houses and buildings;
- land use rights (LURs); and
- any other real estate asset provided for by law.
Types of business
The Law regulates two main types of real estate business:
- commerce in real estate assets, defined as investment with a view to the construction, purchase, sale, lease or lease-purchase of a real estate asset in order to sell, dispose of, lease, sublet or offer it for lease-purchase with a view to a profit; and
- supply of real estate services, meaning all property service and consultancy businesses assisting with property management and the property market, including brokerage services, advice, valuation, auction sales, advertising, management and property exchange services.
Persons authorized to carry on real estate businesses
The Law applies to domestic and foreign companies, Vietnamese and foreign private individuals and Vietnamese nationals living abroad.
However, except for brokerage services, the majority of real estate businesses may only be carried on by a corporate entity (enterprise or cooperative).
Moreover, businesses operating in this market are required to have specially qualified personnel. Qualifications are acknowledged by the issue of ad hoc certificates by the People's Committees.
Domestic and foreign investors
The Law makes a distinction in relation to commerce in real estate assets between domestic and foreign investors.
Domestic investors may carry on all of the "commerce in real estate asset" activities defined by law. The activities of foreign investors are subject to restrictions.
Foreign investors are only authorized to carry on the following activities:
- the construction of buildings and infrastructures for sale, lease and lease-purchase; and
- the enhancement of land and the development of infrastructures on leased land with a view to subletting them.
The scope of the activities open to foreign investors is likely to be enlarged in the coming years.
The Law makes no distinction between Vietnamese and foreign investors in relation to the supply of real estate services. Both are entitled to provide all of the services defined by law.
Legal framework for real estate transactions
The notion of property exchange
For the first time, the Law introduces the notions of property market and property exchange.
Any real estate transaction (defined as including all forms of sale, lease or lease-purchase of a real estate asset) undertaken by a company or private individual engaged in a real estate business must be negotiated through a property exchange, which is a corporate entity. The state also encourages companies and private individuals occasionally engaged in such transactions to refer them to a property exchange.
A property exchange may also offer real estate services (such as brokerage or valuation).
Real estate sales and leasing
Sale or rent price is freely defined by the parties although, in certain circumstances, the state may impose restrictions on contractual freedom.
All contracts must be in writing and, aside from the exceptions defined in the Law, be notarized or certified by the relevant People's Committee.
The validity of the lease agreement is subject to certain procedural and time requirements and only come into force once construction works are completed. Unlike promoters constructing buildings for sale, promoters of buildings for let are granted a property title on completion of the construction works.
The Law allows for signature of a contract for sale before the completion of construction works. However, the investor is only entitled to collect the funds from the purchaser once the foundations have been laid and the building plan approved by relevant authorities. Payments prior to completion may not exceed 70% of the asset value.
By Nicolas Audier