Law on Real Estate Business 2023: implications for foreign investors and real estate market

The new Law on Real Estate Business, approved by the National Assembly on November 28, 2023, is likely to be effective from August 1, 2024, instead of January 1, 2025 as originally approved. Anh Dang, senior partner, and Linh Pham, associate at Vilaf law firm, analyze notable changes brought about by the law and its implications for foreign investors and the real estate business in Vietnam.

The Law on Real Estate Business Law 2023 includes 10 chapters and 83 articles, compared to six chapters and 82 articles in the Law on Real Estate Business 2014. The new law includes many important new points, institutionalizing the policy of Resolution No. 18/NQ-TW dated June 16, 2022, while ensuring synchronization and consistency with the Housing Law 2023, the Land Law 2024, and other related laws.

Scope of the real estate business

First of all, the new Law on Real Estate Business 2023 uses the term “foreign-invested economic organization” (FIEO) (“tổ chức kinh tế có vốn đầu tư nước ngoài” in Vietnamese), in harmony with this definition provided in the Investment Law 2020. This differs from the position of the old Law on Real Estate 2014, which used the terms “foreign-invested enterprise” (“doanh nghiệp có vốn đầu tư nước ngoài” in Vietnamese) and “domestic entity” (“tổ chức trong nước” in Vietnamese), without any definition.

The Law on Real Estate Business 2023 goes further to categorize FIEOs into FIEOs subject to foreign investment procedures; and FIEOs not subject to foreign investment procedures. The former includes (i) enterprises with over 50% of their charter capital being held by foreign investors (hereinafter referred to as “FIEOs-F1”) or (ii) enterprises with over 50% of their charter capital being held by FIEOs-F1, alone or jointly with foreign investors (Article 10.4 of the Law on Real Estate Business 2023). FIEOs which do not fall under either (i) or (ii) are not subject to foreign investment procedures (Article 10.5).

FIEOs subject to foreign investment procedures, similar to Vietnamese overseas having no Vietnamese citizenship, are enterprises which may only conduct a limited scope of real estate business (Article 10.4). Meanwhile, FIEOs not subject to foreign investment procedures can enjoy the same investment conditions as a domestic company or a Vietnamese citizen (Article 10.4). This category of FIEOs in the new law is expected to create favorable conditions and expand the scope of operations for several FIEOs in the real estate business.

Specifically, FIEOs not subject to foreign investment procedures may conduct the following (Articles 10.1 and 10.4):

(i) Invest in construction of housing or buildings for sale, lease, or lease-purchase;

(ii) Invest in construction of infrastructure facilities within real estate projects for transfer, lease, or sublease of the land use right (the “LUR”) that already has infrastructure;

(iii) Buy or enter into lease-purchase of housing, buildings or their floor areas for sale, lease, or offer of lease-purchase;

(iv) Receive transfer of the LUR that already has infrastructure within real estate projects for further transfer or lease;

(v) Lease housing, buildings or their floor areas for sublease;

(vi) Lease the LUR that already has infrastructure within real estate projects for sublease;

(vii) Receive the transfer of an entire or partial real estate project for continuing construction and trading.

Among the above, FIEOs subject to foreign investment procedures will not be entitled to conduct business under items (iii), (iv), and (vi) (Articles 10.3 and 10.4).

Conditions required for a lawful real estate project

The new Law on Real Estate Business 2023 sets out a new list of conditions which must be satisfied for a real estate projects to be lawful. These conditions include the following (Articles 11 and 14.2):

(i) A real estate project must comply with the approved land-use planning;

(ii) It must comply with the planning approved in accordance with the Construction Law and the Law on Urban Planning (e.g. construction planning and urban planning);

(iii) Its investment and construction must comply with the procedures set out under the laws on planning, investment, land, construction, residential housing, and other relevant laws;

(iv) It must comply with the content of the issued construction permit if the project is subject to a construction permit;

(v) It must be invested and constructed in compliance with the schedule, planning, design, and within the investment implementation timeline as approved by the licensing authority;

(vi) With respect to a residential housing investment project, it must comply with the provisions of the residential housing laws;

(vii) A document confirming that residential houses and construction works have been examined and accepted (“nghiệm thu” in Vietnamese) to put into use and operation;

(viii) Project developer has completed the financial obligations with respect to land on which the residential houses and construction works are built;

(ix) The Land Use Right Certificate (LURC) has been issued to the land on which the residential houses and construction works are built; and

(x) It must satisfy the minimum equity capital required for a real estate project, which is as follows (Article 9.2(c)):

(a) 20% of the total investment capital for any project using less than 20 hectares of land; or

(b) 15% of the total investment capital for any project using 20 hectares of land or more.

It is noted that, if a real estate enterprise implements several real estate projects at the same time, its owner’s equity must be sufficient to fund all of such projects at the abovementioned percentages.

Transfer of a real estate investment project

While the term “transfer of an investment project” (“chuyển nhượng dự án đầu tư” in Vietnamese) appears multiple times in the Law on Investment 2020, no meaningful explanation is provided on the definition of that term. However, the Law on Real Estate Business 2023 has finally given a definition for the term “transfer of a real estate project” (chuyển nhượng dự án bất động sản” in Vietnamese), which refers to the situation where a developer assigns to a transferee the whole or part(s) of the project for the transferee to continue investing in construction and operation of the project during its implementation period, as approved by the competent authority (Article 39.1). The transferee shall, upon completion of the transfer of part(s) or the whole of the real estate project, succeed all rights and obligations of the transferor with respect to the whole or part(s) of the project transferred (Article 39.3).

According to the Law on Real Estate Business 2023, the conditions required for a real estate project to be eligible for transfer include the following (Article 40):

(i) The project has been issued with investment policy approval/decision or investment approval; or the investor is recognized as the project developer;

(ii) The project’s detailed planning (1/500 planning) has been approved pursuant to the laws on construction planning and urban planning;

(iii) The compensation and financial assistance for resettlement has been completed with respect to the land on which the whole or part(s) of the project is transferred. (In case of transferring the entirety of a project of investment and construction of infrastructure facilities, the technical infrastructure works must be constructed in line with the approved schedule, design, and detailed planning of the project);

(iv) The LURC of the land on which the whole or part(s) of the project is transferred is not subject to any pending dispute, not listed for enforcement of any judgment, not suspended nor temporarily suspended for transactions by law;

(v) The project itself has not been suspended, terminated nor been subject to any land recovery decision by competent authorities;

(vi) If the transferred project or transferred part of the project is administratively sanctioned, the investor must fulfil the decision on sanctioning administrative violations of the competent authority;

(vii) In case the project is mortgaged to secure the performance of obligations, the mortgage for the project must be released before the transfer;

(viii) The project is still in its implementation period; and

(ix) In case of transfer of part(s) (not the whole) of a real estate project, it must be ensured that the items of the construction work so transferred and their use and operation purposes are kept unchanged and run independently of other parts of the project.

Among these, conditions (i), (vi), (vii), and (ix) are new requirements under the new law, and items (vi) and (vii) may have the tendency to cause delays to the whole process. It is further noted that in relation to item (ix), the new law fails to stipulate the method of determining whether the transferred part(s) satisfy(ies) the condition that the use and operation of the transferred items of works could be “run independently" of other parts of the project.

Trading in existing residential houses and construction works

Under the new law, conditions for existing residential houses and construction works to be put into business include (Article 14.1):

(i) Having a certificate of ownership of houses and residential LURC or house/construction works ownership certificate or LURC or other equivalent documents recognizing the ownership of residential houses and construction works;

(ii) Not being in dispute over the LUR associated with residential houses or construction works, dispute over ownership of residential houses or construction works;

(iii) Not being listed to secure the enforcement of any judgement;

(iv) Not falling into the case where the law prohibits transactions;

(v) Not falling into the case of being suspended or temporarily suspended from transactions as prescribed by laws; and

(vi) Being published with its information as required by Article 6 of the Law on Real Estate Business 2023, which is discussed in section 9 below.

Trading in residential houses and construction works formed in the future

Deposits for trading in residential houses and construction works formed in the future

Unlike the old Law on Real Estate Business 2014, which fails to contain any provisions on deposits for trading in residential houses and construction works formed in the future, the Law on Real Estate Business 2023 clearly stipulates that real estate project investors are only allowed to collect from their customers a deposit of no more than 5% of the selling price (Article 23.5). This obliges investors to secure sufficient funding to construct the projects without mobilizing from end-users.

Conditions for residential houses and construction works formed in the future to be traded

Residential houses and construction works formed in the future must satisfy all the following conditions before they can be traded (Articles 22 and 24):

(i) The construction of future houses and construction works has commenced in accordance with the Law on Construction;

(ii) Having been issued with documents evidencing the LUR;

(iii) Having been issued the following documents:

(a) Construction permit and the application dossiers for the construction permit (if the construction permit is required for the project);

(b) Notice of construction commencement date and application dossiers for design of the houses and construction works (if the construction permit is not required); and

(c) Documents on the acceptance of the completion of technical infrastructure facilities in line with the project schedule. In case of apartment buildings or complex building having residential houses, a document evidencing the acceptance of completion of the building’s foundations must be issued;

(iv) Notification from the project developer to the Department of Construction that the residential houses formed in the future are eligible for sale or lease-purchase, which must be checked and confirmed by the latter;

(v) Residential houses and construction works formed in the future must be included in a real estate project approved by the competent authority, in which the project must clearly specify its purposes of investment in construction of residential houses and construction works for sale and/or lease-purchase;

(vi) Not being subject to any dispute, judgment enforcement, prohibition from transactions, or any suspension or temporary suspension for transactions;

(vii) Having completed land-related financial obligations;

(viii) Satisfying the requirements for a real estate project (Article 11):

(a) A real estate project must be conformable with the land-use plan or planning;

(b) It must be conformable with the planning approved in accordance with regulations of the Construction Law and the Law on Urban Planning;

(c) Procedures for investment in and construction of a real estate project shall comply with regulations of the laws on planning, investment, land, construction, housing, and other relevant laws;

(d) The real estate project has been granted a building permit (if required by law);

(e) The investment in and construction of the real estate project must ensure the schedule, planning, design, and implementation duration approved by competent authorities; and

(f) A housing construction investment project shall also be required to meet relevant conditions set out in the Housing Law;

(ix) Information about the real estate and real estate project being disclosed pursuant to Article 6 of the Law on Real Estate Business 2023, which is discussed in section 9 below; and

(x) The constructed floor within the construction work formed in the future must, in order to be traded, further satisfy the requirements of function, design, the LURC and obligations, land payment method, as follows (Article 14.3):

(a) The building is built under an investment project as prescribed by the Investment Law and the Construction Law and meets relevant conditions, as set out in laws, for property registration in order that the buyer or tenant-buyer can obtain a certificate of property ownership issued by a competent authority;

(b) The floor area of a building to be sold or offered for lease-purchase is dedicated to a specific use purpose, is determined separately from other areas of the building under a project approval or ratified by a competent authority, and clearly shown in the design of the project or building so that the owner can independently manage and use such floor area;

(c) The design of the building within the project or its floor area must be conformable with specialized technical regulations and/or standards for such type of building, and exactly show the functions of that building;

(d) The LUR on which the building whose floor area is to be sold or offered for lease-purchase is located must be certified in terms of land use form and term, and land area which is shared or used separately from owners of other buildings or other land users as prescribed by the Land Law;

(e) Land-related financial obligations arising from the building’s floor area, including land levy, 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 sale and purchase contract or the lease-purchase agreement; and

(f) The land on which the building is built is allocated by the State with charging land levies or leased by the State with collecting land rents in a lump sum for the entire lease term.

Bank guarantee for sales and lease-purchase of residential houses formed in the future

Under the old Law on Real Estate Business 2014, the developer had to obtain a bank guarantee from a commercial bank licensed to operate in Vietnam. The bank guarantee served as security for the purchasers in cases where the developers failed to adhere to the residential house handover timelines under the sales contracts. While the Law on Real Estate Business 2023 retains the above provision, it further allows homebuyers to consider abandoning the required guarantee from commercial bank (Article 26). This is a welcome move from the new law, providing both sellers and buyers the flexibility to enter into sales or lease-purchases of residential houses formed in the future.

Payment for purchase, sale, and lease-purchase of residential houses and construction works

Regulations on payment have also been amended under the new Law on Real Estate Business 2023 (Article 25). For the first payment, under the old law, the amount should not exceed 30%. Although this 30% benchmark is not altered, the new Law on Real Estate Business 2023 now clearly stipulates that the said 30% also includes a deposit.

Under the old law, the following installments had to be conformable with real estate construction progress, provided that the total of the installments did not exceed 70% of the agreement value if the building had not been transferred to the buyers. If the seller or the lessor was a foreign-invested enterprise, the total of the installments would, under the old law, not exceed 50% of the agreement value. Meanwhile, under the new law, in terms of sale of residential houses, the total of the installments shall not exceed 70% for FIEOs not subject to foreign investment procedures, and not exceed 50% for FIEOs subject to foreign investment procedures. For lease-purchase of residential houses and construction works, a cap of 50% on the total of the installments is applicable to all FIEOs. After hand-over but prior to the issuance of the LURC, payments can be made in full under both the old and new laws.

Tightening regulations on “Land subdivision for foundation sale”

Under the new regulations, there are three options for a real estate developer to trade in solely the LURC in a real estate project, specifically (Article 28):

(i) Option 1: Transferring the LUR in form of “land subdivision for foundation sale” (“phân lô bán nền” in Vietnamese) to individuals for the latter to construct residential houses by themselves;

(ii) Option 2: Transferring the LUR to organizations for the latter to invest in construction of residential houses and construction works; and

(iii) Option 3: Leasing or subleasing the LUR to organizations for the latter to construct residential houses and construction works.

Importantly, the regulations surrounding Option 1 have been strengthened. Under the old law, “land subdivision for foundation sales” were prohibited in special or central-controlled Grade-I cities, areas with strict requirements concerning landscape architecture, downtown areas, and proximities of facilities that served as prominent architectural points of cities, frontages of regional- or higher-level roads, and main landscape roads in cities.

Meanwhile, the new Law on Real Estate 2023 prohibits the implementation of “land subdivision for foundation sales” in wards, districts, or cities of urban areas of the special types Grade-I, Grade-II, and Grade-III, and not in the case of auction of the LUR for investment in residential houses and construction works pursuant to the Land Law. For the remaining areas, provincial People’s Committees shall determine the areas where the project developer is permitted to implement “land subdivision for foundation sales”.

The key conditions for transferring LURCs to individuals in “land subdivision for foundations sales” are:

(i) Having fulfilled land financial obligations to the State, including land use fee, land rental and land-related taxes, fees and charges (if any) with respect to the land area associated with technical infrastructure in the real estate project put into business (Article 32.3);

(ii) Fulfilling any penalties on administrative violation in the fields of investment, construction, land, housing, real estate business, and taxes in relation to land associated with technical infrastructure put into business, before transferring the LUR (Article 32.4);

(iii) Obtaining the approval of the provincial PC on the eligibility for LUR to be transferred (Article 31.7);

(iv) Having LURC and within the land use term (Article 31.2);

(v) Having completed the investment in construction of the technical infrastructure project according to the approved detailed planning and the project schedule approved by competent authorities (Articles 31.1 and 29.1(b)); and

(vi) The transfer of LUR must be consistent with investment objectives and contents of investment projects as approved by competent authorities (Articles 31.1 and 29.1(d)).

Use of prescribed contract forms in real estate business

Under the old law, real estate business agreements had to be presented using forms stipulated in Decree 02/2022. However, such regulations have caused confusion among parties in terms of the extent of negotiations allowed and created difficulties in relation to the inclusion of agreed upon contractual terms. Although this provision was aimed at protecting the rights and negotiation positions of buyers when negotiating with real estate companies, the provision failed to achieve this aim and created unnecessary burdens for parties.

Under the new law, when entering into any real estate business contract or real estate service contract, organizations and individuals are only required to comply with provisions of the Law on Real Estate Business and the Civil Code. Meanwhile, only investors of real estate projects and real estate enterprises must use prescribed contract forms, which shall be issued later by the government (Article 45.2), and must publish their real estate business contracts before application pursuant to Article 6 of the Law on Real Estate Business 2023, as explained in section 9 below.

Public disclosure of information about real estate projects put into business

Under the new regulations, before placing any real estate or real estate project on the market, each real estate enterprise shall be required to adequately, honestly and accurately publish information about the project on the housing and real estate market information system and on their websites (Article 6.1). General information to be disclosed in relation to all types of real estate projects include (Article 6.2):

(i) Decision on investment guidelines or approval of investment guidelines or approval of the real estate project;

(ii) Decision on land allocation, land lease or land repurposing issued by a competent authority;

(iii) Information on the detailed planning approved by a competent authority; and

(iv) The standard form contract used in real estate transactions as prescribed in the Law on Real Estate Business 2023.

Other than these, there is specific information to be published in relation to off-plan housing or building, existing housing or building, and LUR that already has infrastructure within a real estate project.

Impacts of the Law on Real Estate Law 2023 on the Real Estate Market

Overall, the changes in the Law on Real Estate 2023 are expected to partially resolve a number of the currently recurring issues in the market. It is now clear the distinction between the IFEOs subject to foreign investment procedures and the IFEOs not subject to foreign investment procedures and their rights when participating in the real estate market. Many provisions in the new law are aimed at elevating the positions of buyers as well as strengthening their protection in general.

The new law also ensures that real estate companies’ adherence to the law does not put these companies in a disadvantaged position. For example, there are clear regulations requiring that real estate project investors can only collect deposits of no more than 5% of the selling price, which requires that businesses have stronger financial capacity and better construction implementation capacity to ensure punctual hand-over of real estate projects.

The new law is also expected to contribute to the sustainable development of the Vietnamese real estate market. The tightening of the regulations on “land subdivision for foundation sales” is a clear proof of this. Under the existing law, regulations on “land subdivision for foundation sales” are insufficient, resulting in many speculators collecting land, dividing it into lots and split plots, and giving them the same commercial names as the projects to attract customers, and at the same time inflating prices, causing market chaos.

The new regulations, which are discussed in more details in section 7 above, are expected to reinforce State management of “land subdivision for foundation sales”. However, even with strengthened regulations, market players may still find loopholes in the law and act in ways which are detrimental to the market and against the draftsmen’s intentions. It is not until the effective date of the Law on Real Estate Business 2023 that one will learn the precise impacts of the law. Last but not least, issues on lack of transparency and information are expected to be improved with the requirements on public disclosure of information, which is discussed in section 9.

The Law on Real Estate Business 2023 takes effect from January 1, 2025 and replaces the Law on Real Estate Business 2014. However, on May 17, 2024, the government issued Resolution No. 73/2024/NQ-CP proposing that the effective date of the Law on Real Estate Business 2023 be brought forward to July 1, 2024, in less than a month.

More recently, Deputy Prime Minister Tran Hong Ha has signed the Prime Minister's Official Telegram on accelerating the progress of construction and promulgating documents detailing the implementation of the Land Law, Housing Law, Law on Real Estate Business and Law on Credit Institutions. Accordingly, the Law on Real Estate Business may be effective from August 1, 2024.

It is expected that the early implementation of the law will contribute to the prompt institutionalization of the Party's policies and guidelines, promoting effective use of land resources and creating a healthy and sustainable real estate market.