The Law on Real Estate Business No. 66/2014/QH13 dated November 25, 2014 (“LOREB”) is a popular legal instrument that is referred when doing business in Vietnam due to the bustling real estate market. Its provisions have been elaborated by Decree No. 76/2015/ND-CP dated September 10, 2015 (“Decree 76”). On January 6, 2022, the Government of Vietnam issued a new decree, Decree No. 02/2022/ND-CP (“Decree 02”) to replace Decree 76. Decree 02 consolidates some updates from the regulations under the Law on Investment No. 61/2020/QH14 dated June 17, 2020 (“LOI”) and provides new provisions to promote, as well as regulate, the real estate market in Vietnam. Decree 02 took effect on March 1, 2022.
Conditions for business operation
Business conditions for real estate business (“REB”) are adjusted and supplemented under Decree 02 to enhance consistency and synchronization along with current regulations of both the LOREB and LOI. Specifically, the chartered capital threshold of the REB line has been abolished . Meanwhile, for real estate investment projects, the thresholds of the owner’s equity are added, where there must be at least 20% of the total investment capital for projects with a land use scale of less than 20 hectares and at least 15% of the total investment capital for alternative cases. Investors must determine such equity based on the results of the most recent audited financial statement or an independent audit report. Only newly established enterprises are allowed to determine equity on the basis of the investors’ actual contribution of charter capital instead. In addition, REB enterprises are only allowed to do business with the real estate which is eligible under the LOREB .
Moreover, Decree 02 provides exceptions for the establishment of a REB enterprise. These cases guide organizations, households and individuals who conduct REB infrequently, including REB related to public property owned by the State in enterprises.
Procedures for the assignment of REB contracts and projects
The criteria required for the assignment of off-plan house purchase contracts and completed house lease-purchase contracts have been unified under Decree 02. Some notable conditions for the assignment of the prescribed contracts are:
– There has been a contract made complying with the form prescribed in Decree 02 or signed prior to the time of this Decree;
– The application for the certification of real estate has not been submitted yet;
– The contract is free of any disputes, complaints or lawsuits;
– The house is not subject to any foreclosure or mortgage, unless agreed to by the mortgagee;
– This is not applicable to the case of social housing.
Decree 02 sets forth the principles to distinguish and carry out the procedures for assigning, in whole or in part, a real estate project as follows :
(i) For REB projects whose investors are approved or granted an Investment Registration Certificate (“IRC”) in accordance with the LOI, the assignment shall be implemented in accordance with the laws on investment;
(ii) For REB projects other than the above in (i), they must comply with the provisions of the LOREB and Decree 02.
Accordingly, such projects that are granted equivalent legal documents in accordance with the provisions before the current LOI or projects whose investors are selected through auction or bidding procedures without taking the procedures for the IRC issuance under the LOI will be the cases referred to in (ii) . This provision is a proper and consistent note to the regulations of the LOI, ensuring the classification and clarity in application of law for separate cases of project assignments.
Furthermore, another new requirement for assigning projects is the demonstration of investors’ capacity with capital sources to ensure the prompt and proper implementation of the approved project . Compared to Decree 76, this condition has a broader provision, thereby setting a higher threshold which REB enterprises must satisfy when conducting a project assignment.
Application of model contracts in REB
For model contracts in REB transactions, Decree 02 introduces some notable changes. The model contracts listed in Decree 02 are mandatory contracts which must be applied when performing such corresponding transactions in REB. This regulation has replaced the spirit of suggesting and optional for the contractual parties during the process of negotiating and entering into a contract as in Decree 76. Moreover, Decree 02 also introduces several new model contracts regarding special REB products such as tourist apartments and office apartments combined with accommodation, which are becoming popular. Key legal provisions in these contracts are the terms which prescribe the characteristics of the real estate and the contractual parties’ obligations.
Obligation to disclose information
In Decree 02, there are some additional regulations related to the obligations to disclose and publish information in REB. Accordingly, businesses must disclose information and promptly update on any changes because this is an operating condition of REB. Disclosing information shall be published on the enterprise’s website, at the project management board’s head office and on the trade exchange, including details about the real estate on the market, mortgage information, the quantity and type of real estate products that are traded, leased and available . Provincial-level People’s Committees are responsible for public disclosure of any decisions to accept project assignments on their official portals and reporting to the Ministry of Construction for its supervision .
Decree 02 is quite concise. However, it is expected to help overcome present shortcomings and inadequacies in REB market, while at the same time, improve the clarity and transparency of the relevant legal framework. Investors, marketers and purchasers in the field of REB should carefully consider and study these new regulations to obtain appropriate business directions from March 1, 2022.
For further information, please contact:
Kent Wong, Partner, VCI Legal