Key points and market implications of Vietnam’s new Real Estate Business Law

The National Assembly on November 28, 2023 passed the Law on Real Estate Business 2023 (LREB 2023), which will take effect on January 1, 2025. CBRE researchers gave an insight into new points.

Scope of regulation

The new law narrows the scope of regulation compared to LREB 2014. These changes address overlapping regulations with other important legislation such as the Land Law, Housing Law, Law on Investment, Law on Management and Use of Public Property, and other related laws.

LREB 2023 shows a clear and independent delineation of specialized real estate in relation to other fields related to investment and land. For example, the transfer of land use rights (LURs) and the transfer of real estate projects as collateral for debt recovery will be carried out according to the Law on Credit Institutions.

Foreign invested economic organization

LREB 2023 amends and clarifies regulations on foreign-invested economic organizations, which are not required to carry out investment procedures applicable for foreign investors under the provisions of the Law on Investment, but are allowed to conduct real estate business the same as domestic organizations and individuals.

This amendment helps create favorable conditions and expand the scope of operations for foreign-invested economic organizations on specific cases while ensuring consistency with the Law on Investment.

Deposits in houses and construction projects formed in the future

LREB 2023 says that real estate project investors are allowed to collect a deposit not exceeding 5% of the selling price, lease-purchase price of houses, construction works, and construction floor area in construction works from customers only when housing and construction projects have satisfied all conditions to go on the market.

This is a notable new point that reflects the true nature of the deposit while limiting risks for the buyer or hire-purchase party. However, the deposit regulations do not mention the issue of deposit penalties, so the deposit penalty ratio will apply according to the parties' agreement. This regulation needs further guidance and to be applied for a period of time in practice to evaluate its effectiveness.

Conditions for putting houses and construction works formed in the future on the market

LREB 2023 adds a new regulation that says project investors must complete financial obligations regarding land fees to the State, according to existing regulations for land attached to houses and construction works that are put on the market.

The new regulation continues to tighten conditions for real estate that can be put on the market. Previously, requiring investors to fulfill their financial obligations was only partially implemented according to local policies. This led to a lack of synchronization and unity among localities and caused investor inequality. Therefore, this amendment is beneficial because it will ensure that regulations are applied consistently.

Guarantees for sale and lease purchase of off-plan houses

LREB 2023 grants the purchaser the right to choose whether or not to require a guarantee of the investor's financial obligations. This regulation creates flexible room for the parties to negotiate freely depending on their actual needs, but still gives the purchaser the discretion to request bank guarantees where necessary to protect their legitimate rights when signing a contract with the investor.

This regulation also aims to simplify paperwork by detailing the guarantee provision process, enhancing the responsibility of investors to properly implement regulations, and giving customers a clear basis to ensure their legitimate rights and interests when dealing with developers.

Land plots – Condition for dividing and selling

LREB 2023 adds type II & III urban areas, which tightens the old regulations on dividing and selling land plots. This will help ensure healthy housing market development, landscapes, and urban development.

The new regulations also specify procedures for investors to proceed with any transfer according to the provisions of law. Specifically, before transferring LURs, the project investor must send notification of qualified LURs to a competent authority. Within 15 days, the competent authority must answer whether the conditions for transfer in the form of dividing lots and selling plots are met.

Conditions for transferring all/part of a real estate project

Compared with the current laws, LREB 2023 sets out an additional condition requiring the transferring investor to complete financial obligations regarding land for the project. This regulation tightens the transfer conditions, preventing the transfer of projects for profit, and is consistent with the principle that sellers are only allowed to transfer what they have.

This regulation is a filter test so that only developers with good financial capabilities can participate in M&A activities. On the other hand, it could become a burden for real estate developers in general since delayed real estate projects are quite common in Vietnam.

Payment in real estate business

LREB 2023 specifically stipulates mandatory conditions applicable to investors and real estate enterprises that must receive payments from customers via a bank. Other cases will be agreed upon by the parties themselves and are not required via bank.

This also aims to institutionalize the content in Article 2.6, Section IV of the Party's Resolution No. 18-NQ/TW dated June 16, 2022 on strengthening payments via banks, and not using cash in real estate transactions.

Real estate brokerage

Under the new regulations, individuals are allowed to practice independent brokerage as long as they have a real estate brokerage practice certificate and are registered to pay taxes. However, individuals are no longer allowed to practice independently but must practice through real estate service businesses.

This regulation adds standards for independent brokers to practice real estate brokerage practices, helping to professionalize brokerage activities. At the same time, applying this change will also help avoid government tax losses.

“With new regulations, LREB 2023 shows a clear and independent delineation of the real estate sector in relation to other sectors regarding investment and land. For example, the transfer of land use rights and the transfer of real estate projects as collateral for debt recovery will be carried out in accordance with the Law on Credit Institutions", said Duong Thuy Dung, executive director, CBRE Vietnam.

Regarding the conditions for selling houses and construction projects formed in the future, Dung commented: "The new LREB continues to tighten conditions for real estate put into business. The previous edition of this law required investors to fulfill their financial obligations as per each locality's policy. However, this application led to a lack of synchronization and consistency between localities and caused inequality among investors. Therefore, this amendment is useful in ensuring uniform application of legal regulations."