In more details
The eventful year of 2023 is drawing to a close. For enterprises and investors, it is a springboard to a 2024 full of hope and positivity. This message certainly resonates for those in the real estate industry, particularly in light of the amended Real Estate Business Law and the amended Housing Law, which were adopted by the National Assembly on 28 November.
Vietnam is striving to maintain its position as a production base for the world, in competition against some other strong players in the region, such as the Philippines, Malaysia, Thailand and Myanmar. This requires an abundance of resources, including labor, land, energy and infrastructure.
With regard to energy, the Power Development Plan VIII was adopted by the government a few months back and drew a lot of attention from energy industry stakeholders. Extensive groundwork is being undertaken to implement the plan.
However, the most important asset and market that Vietnam is really focused on is land and real estate. Real estate is a sweet spot and where many investors, both domestic and foreign, have bet their money. While implementation of the amended Land Law has been delayed, the amended Real Estate Business Law and the amended Housing Law have been both adopted and will take effect from 2025.
While the texts of these two new laws are being reviewed and confirmed by the technical committee of the National Assembly prior to their release, we can offer a hint of the major changes that are most likely to happen.
Firstly, with the amended Real Estate Business Law, many changes are being introduced to better manage the real estate market. The winter of the real estate market starting in late 2021 and extending into 2024-2025 is the result of, but has also helpfully exposed, many mismanagement points in the industry.
The law regulates the capital raising of residential developers with certainty. There will be stricter conditions for signing deposit contracts for future real estate products, and developers will not be allowed to collect more than 5% of the value of the real estate that will be built in the future unless and until they have met the mandatory conditions for the deposit collection.
The regulations also codify obligations of the developers on the management and use of such advanced deposits. This is aimed at protecting consumers and reducing speculation, and to help keep the housing market from overheating; young families with lower incomes will stand a chance of buying their first home earlier.
Still in the spirit of protecting the interests of customers, the amended Real Estate Business Law continues to tighten conditions for real estate products to be put into business, especially the requirement that developers must have fulfilled their financial obligations related to the land, including payment of land use fees, land rent and taxes, fees and charges related to land (if any) to the state before they can deploy the real estate for transaction.
In addition, other conditions on a project's legal status, including required land use rights documents or on construction commencement, are also made clearer by the amended law, which further aims to bring transparency and confidence to investors, state agencies and consumers.
On the other hand, the requirement of having a bank guarantee backing up the obligation of the developer will no longer be mandatory. Under the new arrangement, developers and home buyers may agree on a bank guarantee if the home buyers deem it necessary.
Contract templates is the other noteworthy provision of the amended law, which stipulates that only real estate developers and real estate companies are required to follow the contract templates imposed on their business. Other entities can use their own forms of contracts, as long as they comply with the legal framework under the Civil Code and the amended law.
Finally, foreign-invested companies having foreign capital of up to 50% can be viewed as a domestic investor, which is consistent with the definition under the Investment Law when they acquire real estate projects. This means that foreign capital shall be allowed to be invested in real estate with more ease. However, it remains to be seen how this will be implemented in practice.
Meanwhile, the amended Housing Law has put many debates to rest. For one, it has been decided that apartment ownership is not subject to a definite term. When a building surpasses its intended lifespan, the owners must re-build it and they will still own the relevant land use rights and part of the new building.
The amended Housing Law is expected to provide a seamless legal framework to mobilize capital to develop social housing. The law provides strict conditions for building housing projects, including multi-level storey and multi-level apartment buildings owned by individuals for sale and sublease. Last but not least, homebuyers will no longer be required to meet the residency requirement to qualify for social housing purchases.
The new laws are aimed at tightening state management over the real estate market and at heightening corporate governance of developers. The real estate market is expected to warm up in 2024-2025. The coming into force of these laws, together with the amended Land Law, if adopted next year, is expected to boost confidence of stakeholders in the market and aid a deeper recovery of the market.
