Vietnam _Draft Law on Real Estate

1. Draft Law on Real Estate
Author: Oliver Massmann
The National Assembly recently issued the fifth draft of a new Law on Real Estate Business, to replace the
current law, which was implemented 7 years ago (Current Law). This most recent draft, which was issued on 25
September 2013 is thought, at this stage, to be the final draft (Draft Law)
In this article, we will discuss the significant changes proposed in the Draft Law.
Permitted scope of real estate business activities applicable to foreign investors
The Current Law prevents foreign investors from acquiring a completed construction project. Foreign investors
must develop new construction projects in order to invest in this industry. This has limited the ability of foreign
investors to actively participate in the real estate market.
The Draft Law attempts to broaden the scope of permitted real estate activity of foreign investors by allowing
them (i) to lease completed houses or construction projects for sublease; and (ii) to purchase completed office
space for lease.
In the case of residential property, the Draft Law provides that any purchase or lease of residential property
must be in accordance with the law on residential property. This law only contemplates three circumstances in
which a foreign investor can acquire residential property in Vietnam:
1. New construction of a residential housing project for sale and/or lease;
2. Purchase of an apartment for residence in Vietnam by a foreign investor, who is permitted to purchase
residential houses by Resolution 19/2008/QH12 of the National Assembly (this includes certain types of
individuals such as those who have made, or who manage, foreign direct investments, who are recognized as
having made exceptional contributions to Vietnam, who have special qualifications or who are married to a
Vietnamese citizen; and
3. Purchase of apartments by a foreign owned enterprise for residence by employees in Vietnam.
Therefore, it seems that foreign investors remain restricted from purchasing completed dwelling houses for
lease. It remains to be seen whether the scope of permitted activities of foreign investors in this respect may be
broadened in implementing regulations.
Another noteworthy point in the Draft Law is that foreign invested enterprises, branches, representative offices
of offshore companies, foreign investment funds and branches of foreign banks in Vietnam, which do not
engage in real estate business, are also permitted to lease, purchase and own office spaces, both for their own
office use and for sublease. The Draft Law does not state whether or not these entities are required to be
licensed to sublease their office space for profit. If so, it is unclear as to whether or not these entities must
satisfy regulatory requirements (eg. the requirement to have sufficient legal capital) to lease out office spaces. It
is hoped that this issue will be addressed in the implementing regulations.
Conditions for trading real estate

2. The six conditions currently required to be satisfied in order for real estate to be eligible for trading are retained
in the Draft Law. However, the most significant condition, setting out title documents required to be produced,
has been amended to narrow the circumstances under which a certain number of title documents must be
submitted. Under the Draft Law, only two circumstances are addressed:
1. In the case of an existing house or construction project, certificate of land use right, house ownership and
other assets attached to land or lawful documentation proving ownership over house or construction project
and land use right attached to that house, construction project must be located;
2. In the case of a house or construction project to be formed in the future, an approved project file and
construction permit must be available.
Two remaining circumstances removed from the Current Law are:
1. In the case of a house or building in the course of construction, there must be a building permit or an
approved project file with design drawing of building execution.
2. In the case of house or building belonging to a new urban zone project, residential zone project or industrial
zone technical infrastructure project which does not yet have a certificate or ownership or a certificate of use
right, there must be design drawings of building execution, a file of the completed works and minutes of
handover and commissioning for use of the house or building.
The effect of the amendments in the Draft Law are that property in the course of construction, or houses or
buildings located in a new urban zone, residential zone or industrial zone, which have not been issued with title
documents, are no longer eligible for trading.
Investment capital for real estate business
A new provision on investment capital is inserted in the Draft Law which provides that investment capital of real
estate business should be formed by equity capital, loan and raising capital. Loan capital may be obtained from
credit organizations, financial institution, real estate investment funds or through issuance of bonds. Meanwhile,
capital can be raised from: (i) capital contribution by any individuals and entities in the form of a joint venture,
business cooperation contract or partnership; and (ii) advance payments by purchasers.
The Draft Law also contemplates a new requirement of an investor making a deposit, with a view to ensuring the
implementation of the project by the investor. The Draft Law delegates authority to the Government to provide
further guidance on the contemplated deposit arrangements.
Assignment of projects
Assignment of projects is legally permissible under the Law on Investment and other relevant laws. However, in
practice, foreign investors tend to run into difficulties when attempting to assign, or receive assignment of
projects from other investors. These are due to the fact that the Current Law is only limited to assignment of
three types of projects being those in urban zones, residential zones. Further, investor are increasingly finding
the need to assign part of the project to another party, however the Current Law only permits assignment of an
entire project.
In order to address these two limitations, the Draft Law allows assignment of all types of projects, rather than
only the three types of projects listed above. In addition, the Draft Law proposes the assignment of both whole
and part of project. However, certain practical elements of assigning projects remain unclear. The section of the

3. Draft Law which deals with assignment of projects refers to some existing provisions of the Current Law.
However, it only addresses the concept of project assignment, conditions for assignment of project and
obligations of vendor and purchaser of the assigned project. Further clarification on the details of how such
assignment of projects will work will need to be specified in implementing legislation.
The Draft Law does, however introduce some significant conditions for project assignment which are not
included in the Current Law. These include that:
- the assigned project has been approved;
- the site has been cleared;
- infrastructure is completed in accordance with the schedule of the project;
- the land lease contract or land allocation decision or land use right certificate must have been issued; and
- the original purpose of use of the assigned project must be retained after the assignment.
The Draft Law requires the purchaser of the assigned project to inherit all rights and obligations of the vendor.
Real estate trading floor
The current requirement to conduct real estate business through a real estate trading floor does not appear in
the Draft Law. This is considered to be very significant change to the Current Law. Investors have welcomed this
change due to the fact that a real estate trading floor is perceived as unnecessary for real estate transactions in
practice, as well as the source of extra cost for investors.
However, investors in the real estate industry may still opt to set up or hire a real estate trading floor in order to
conduct real estate transactions if they wish to do so.
Real estate contracts
The Draft Law removes the requirements for “real estate business contracts” (such as contracts for the sale and
purchase of land or buildings, or assignment of land use rights), and “real estate business services contracts”
(such as valuation, brokerage or consultancy contracts), to contain mandatory contents, and instead refers to
the principle of freedom of contract principle to allow parties to freely agree on the provisions.
Advance payments
The Draft Law clarifies the regulations on purchasers making advance payment to investors engaged in real
estate business. The Draft Law proposes to insert a new provision allowing the investor to receive payment in
advance, provided that it does not exceed 90 % of the selling price as set out in the contract prior to issuance of
a certificate of land use right, ownership of house and assets on land.
Like the Current Law, the Draft Law confers upon the investor the right to receive the first advance payment
upon completion of the infrastructure. It can be seen that this provision conflicts with the Law on Residential
Housing, which stipulates that the advance payment can only be made when the foundations have been
completed. As such, given the priority order of legal instruments, it seems that in the case of residential housing,
the Law on Residential Housing will continue to prevail, meaning that receipt of an advance payment with
respect to a residential house must only be made once the foundations have been completed.
If you have any question, please contact me via: omassmann@duanemorris.com;