15 September 2015

New Decree on Real Estate Business Law

In November 2014, the National Assembly passed the new Law on Real Estate Business which took effect from 1 July 2015 (“New LREB”). The decree implementing the law was expected to be adopted in July. Decree No. 76/2015/ND-CP regulating implementation of the New LREB was finally issued on 10 September 2015 (“Decree 76”). We are pleased to see that some of our key comments raised on the draft decree on the New LREB (“Draft Decree”) have been incorporated. We set out below some key changes worth noting in Decree 76 which shall be of full force and effect as of 1 November 2015.

Minimum Capital
In the Draft Decree, there was a proposal to increase the minimum capital applicable to certain real estate projects from VND20 Billion (approximately US$890,000) to VND50 Billion (approximately US$2.22 Million). We had previously commented during the Vietnam Business Forum Meeting held on 9 June 2015 that such increase of minimum capital is inconsistent with the New LREB and would lead to loss of competitiveness. We are pleased to note that the increase has been removed from Decree 76.

Regulating Real Estate Business
Under the New LREB, entities conducting real estate business would be subject to certain conditions eg minimum capital requirements and development and licensing approvals. We expressed our concerns that the scope of the application of the New LREB did not clearly exclude small scale and retail real estate transactions which were not intended to be regulated in this manner. The Draft Decree excludes real estate business “on a small scale and not regular basis” but did not provide sufficient further guidance on what would fall under this category. In response to this, Decree 76 provides that family households and individuals who sell, transfer, lease out, hire-purchase real estate by way of investment in a real estate project for business purpose BUT the total investment capital is lower than VND20 Billion (approximately US$890,000) (exclusive of land use fee) are considered as conducting real estate business on a small scale and not regular basis. This is a very clear quantitative measure which can be applied consistently.

Contract Templates
Decree 76 provides contract templates for a number of real estate transactions eg sale and purchase agreements, presales contracts and hire-purchase contracts. The concern relating to this is that any variation from such form of contract whilst still in compliance with the laws and spirit of the laws would be rejected. This would lead to administrative delays and potentially limit the rights of the affected parties. Decree 76 for the first-time clearly states that such contract templates are for reference only and that the parties may reach agreement to amend, supplement articles and clauses set out in contract templates in accordance with the laws. We are pleased to see this approach clearly provided in the law.

Project Transfer Procedure
We note that according to the Draft Decree, application files for project transfer shall include the business/enterprise registration certificate of the transferee. These conditions may apply to transferees being both domestic investors and foreign investors who already have existing projects in Vietnam. However, it may cause difficulties to investors being foreign individuals and organisations who invest in Vietnam for the first time with the investment project being the transferred project. In such case, they may not have any business/enterprise registration certificate pursuant to the investment registration procedure under the laws. This inadvertently excludes such investors from receiving project transfers. Decree 76 provides that investors who have not yet established economic organisations in accordance with the law on investment will be exempted from the business/enterprise registration certificate requirement.

Existing Agreements in Jeopardy?
The Draft Decree was silent on the validity of existing agreements which have already been signed before it takes effect. This was of particular concern as it could potentially destabilise the real estate sector. Whilst legislation would typically not have retrospective effect, we consider it useful for a clear statement on this to be provided in the decree as is the practice with other pieces of legislation. Decree 76 clearly states that contracts for sale and purchase, transfer, lease out or grant of hire-purchase of real estate, project transfer, documents for transfer of contract which were signed prior to the effective date of Decree 76 shall continue to be implemented and need not be re-signed.

We are pleased to see that the majority of our comments on the Draft Decree has been incorporated into Decree 76. This is a clear example of law drafters listening and responding positively to private sector views. Together with the expansion of rights of foreign investors to conduct business and buy property, these changes are important for creating a vibrant real estate sector. The next step would be to ensure that the new laws and rights are implemented transparently and efficiently. That would be the real test as to whether there is a real desire to move the real estate sector to the next level.

For any additional information and inquiries regarding this new decree, please contact:

My Vo
t. +848 3915 1000


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