Unsolved issues under draft amended law on housing

The construction ministry recently released a draft amended Law on Housing. Senior partner of Vilaf law firm, Dang Duong Anh, analyzes the highlights of the draft and issues that the content fails to address.

The Ministry of Construction (MoC) recently released a draft amended Law on Housing (the draft new law) seeking public comments and feedback, which will, once issued, replace the Law on Housing No. 65/2014/QH13 adopted by the National Assembly on November 25, 2014 (the current law).

While the draft new law proposes a number of amendments and supplements to the current law, which appear to have gained public attention, it has also upgraded provisions from current regulations with the aim of reinforcing the stability and enforcement of those provisions.

Ownership of apartment buildings

The current law and its guiding regulations do not restrict the ownership period of apartment buildings. Meanwhile, construction laws provide for the use term of construction works, and when that expires those works must be demolished. This requirement aims to deal terms of use for many old apartment buildings have expired and their quality seriously downgraded, endangering the lives of residents.

However, it is very complicated to demolish those old apartment buildings since their residents believe that their ownership of the apartments is perpetual, and the demolition of a building would solely be at the discretion of each household of every single apartment.

To deal with these delays, articles 25 and 26 of the draft new law for the first time propose the ownership period for apartment buildings, specifically:

(i) The ownership period of apartment buildings is determined according to the term of use of construction works set out in the apartment building design documents as appraised by competent authorities.

The ownership period is calculated from the acceptance of the whole apartment building in accordance with construction laws. The ownership period of the apartment building must, as required by the draft new law, be clearly specified in the relevant apartment sale and purchase contracts or lease-purchase contracts;

(ii) The ownership period of the apartment building must be stated in the ownership certificate issued to the relevant apartments’ owners except that the owner is the state. The competent authority must base on the design dossier of the apartment building and the apartment sale and purchase contract to determine the ownership period of the apartment building; and

(iii) Notwithstanding the above, the ownership period of apartment buildings which have been granted construction permits or, in case of exemption from construction permits, have technical design and/or, where applicable, the construction design appraised before the draft new law comes into effect, shall be perpetual according to the current law.

The restrictions on ownership period of apartment buildings, however, have raised criticism from the public. From a legal perspective, this approach seems to contradict the general policy on protection of private ownership of a person as set out under the Constitution 2013, which is further detailed under the Civil Code 2015.

Particularly, the Civil Code 2015 does not limit the period during which a person can enjoy ownership over an asset (i.e. apartments). It only provides for cases where the ownership over an asset is terminated, which do not include the case where an asset is unsafe due to the expiry of its term of use.

Further, this approach, if adopted, may create inconsistency in terms of a legal framework between apartments and other residential houses. While the draft new law regulates the ownership period of apartments according to the useful life of an apartment building, it does not regulate the ownership period of other residential houses (for instance, individual residential houses) according to their useful life. This means that while the ownership period of apartments is limited by the draft new law, the ownership period of other residential houses will remain perpetual.

In addition, from an economic perspective, this approach may create chaos in the housing market where two product lines would be on offer, including apartments with a limited ownership period (those to be constructed after the draft new law comes into effect) and apartments with perpetual ownership (those constructed before the draft new law comes into effect).

Given the traditional perception of Vietnamese people about their residential homes, buyers may not wish to purchase apartments with a limited ownership period as proposed by the draft new law, causing potential adverse impacts on future housing projects if the draft new law is enacted.

Restrictions on number of houses owned by foreign organizations, individuals

According to Article 21 of the draft new law, foreign organizations and individuals may only purchase, hire purchase, acquire and own no more than 30% of the apartments in an apartment building.

In cases of individual residential houses covering an area with a population equivalent to that of an administrative unit at ward level, foreign organizations and individuals may only purchase, hire purchase, acquire and own no more than 250 houses. In cases where an area with a population equivalent to that of an administrative unit at ward level having a number of apartment buildings or in cases of individual residential houses on a street, the number of apartments or individual residential houses that foreign organizations and individuals may purchase, hire purchase, acquire and own shall be specified by the government.

The current law and its guiding regulations also apply the same quantitative approach as above on the ownership ratio of foreigners purchasing apartments and houses in Vietnam.

However, this approach seems inappropriate in certain circumstances as it does not take into account the geographical location of apartment buildings or individual residential houses. For instance, the demand for accommodation for foreign individuals in cities and provinces which are highly attractive to foreign investors such as Hanoi, Hai Phong, Bac Ninh and Thai Nguyen in the north or Ho Chi Minh City, Binh Duong and Dong Nai in the south is definitely much higher than that in other provinces and cities.

Large foreign investors may wish to purchase a substantial part or the whole of an apartment building to accommodate foreign employees who come to work in specific provinces or cities in Vietnam, such as Bac Ninh and Thai Nguyen in the north, and Binh Duong and Dong Nai in the south.

In addition, it is unclear as to how competent authorities will determine “an area with a population equivalent to that of an administrative unit at ward level” in order to calculate the number of houses which foreigners are allowed to purchase and own.

Although the Standing Committee of the National Assembly has provided a standard for the population of an administrative unit at ward level, it is unclear whether competent authorities will base their decisions on this standard or instead base them on the actual population of a particular ward.

If the latter approach is applied, this provision would become very unpredictable for foreign organizations and individuals and consequently discourage them from owning houses in Vietnam since, for example, the population of a ward in Hanoi is very different from that in Hai Phong.

Rights of foreign organizations, individuals owning houses

The draft new law inherits regulations regarding the rights of foreign organizations and individuals owning houses in Vietnam under regulations guiding the current law.

According to Article 22 of the draft new law, foreign organizations and individuals are only entitled to own houses in Vietnam for a limited period. For foreign individuals, the ownership period must not exceed 50 years. For foreign organizations, the ownership period must not exceed the duration of their investment certificates. Foreign individuals and organizations must give or sell their houses to other individuals and organizations entitled to own houses in Vietnam before the expiry of the ownership period; otherwise, their houses would be claimed by the state upon the expiry of the ownership period.

In practice, it is not easy for foreign individuals and organizations to find a receiver or purchaser before the expiry of the ownership period. In this case, foreign individuals and organizations are at risks of losing their investments. Thus, these provisions may make the housing market in Vietnam less attractive to foreigners.

It is necessary to specify the time limit for foreign individuals and organizations to give or sell their houses to other individuals and organizations entitled to own houses in Vietnam (e.g., six months or 12 months since the expiry of the ownership period).

Conditions for residential houses to be involved in transactions

Both the draft new law and the current law require a person to obtain a certificate of ownership for his/her residential house before putting the house up for sale, hire purchase, giving, exchanging, mortgaging, or conducting capital contribution transactions. This provision has created many difficulties in practice, because pursuant to the land laws, owners of houses and construction works are only encouraged (but not obliged) to obtain a certificate of ownership for their assets.

In practice, many people (especially people living in rural areas) are unable to mortgage their houses or assets attached to the land as they have not registered their ownership of such assets with competent authorities although by law they may be the legitimate owners.

Conclusion

The Drafting Committee of the draft new law should consider a more appropriate approach to resolve the practical issues under the draft new law, including the ownership and use term of construction works of apartment buildings, the restriction of the number of houses owned by foreign organizations and individuals in Vietnam, as well as carefully review the draft new law to make sure the provisions are in line with other laws (such as the ownership of assets under the Civil Code).