New Real Estate Regulations Set to Enter into Force
Starting next month, significant changes will come into force for investors doing business in the real estate sector in Vietnam.
Decree No. 02/2022/ND-CP (“Decree 02”) details the implementation of a number of articles of the Law on Real Estate Business. Issued last month, it will replace the previous regulations (Decree No. 76/2015/ND-CP) on 1 March, when it will also introduce eight new template contracts to be used for real estate transactions.
Under previous legislation, organisations and individuals conducting real estate business needed to establish an enterprise with a capital contribution of at least VND 20 billion (or around USD 850,000). Exeptions included some business lines – such as real estate consulting services – and individuals or households performing real estate transactions on an occasional basis.
However, according to Decree 02, investors will no longer need to meet a minimum amount of capital contribution. Instead, the new regulations require that investors have ‘equity’ of at least 15 per cent of the total investment capital in the form of paid-up capital, loans, or other sources of finance. This rises to 20 per cent for projects with a land-use scale of less than 20 hectares.
Decree 02 does not define ‘equity’ in this case. However, it does provide guidance that this should be determined based on the latest audited financial statement. Meanwhile, for new companies, it should be based on the actual contributed charter capital.
Decree 02 also introduces eight new template contracts for real-estate transactions. These include for apartment sales, officetel and condotel sales, separate house sales, construction work sales, construction lease, land-use right (LUR) transfer, LUR lease, and contracts for the transfer of all or part of a real estate project.
In another change to previous legislation, Decree 02 stipulates that real estate transactions must follow these contracts. In the past, parties were permitted to draft their own contracts rather than following a pre-established form. It is not clear to what degree it will be possible to deviate from these templates, or whether a court could rule that a contract is invalid because it is too different from the pre-approved form.
Meanwhile, the government also published new regulations last month on sanctions for administrative violations in construction and real estate business activities. Decree 16/2022/ND-CP (“Decree 16”), issued on 28 January, introduces more serious sanctions for two administrative breaches.
First, a fine of between VND 80 and VND 100 million can be issued if a real estate business contract is signed which does not contain all of the main content required. This can can also be issued if a contract contains something which is in violation of law or regulations. However, it is not specified in Decree 16 if this includes a contract which does not follow one of the above templates. Second, state authorities could insist on remedial measures which would force the parties to sign a contract which meets the relevant laws and regulations.
It remains to be seen how often these penalties will be enforced. The team at APFL & Partners will monitor their implementation in practice and keep our clients updated as this becomes clearer.