Draft decree implementing the law on real estate affairs
In an attempt to reform the licensing procedures for real estate projects (“RE”) in Vietnam as part of the comprehensive modification of investment conditions and procedures in Vietnam, the National Assembly adopted the new law on the investment in 2020 (“LOI”), which also amends the Residential Housing Act 2014 (“LRH”) and the Real Estate Activities Act 2014 (“LREB”). This year, the Vietnamese government promulgated Decree 31/2021 on the implementation of the LAW and Decree 39/2021 amending Decree 99/2015 on the implementation of the LRH and will soon issue a third decree to implement implements the LREB as amended (“Draft Decree”). This Draft Decree will replace Decree 76/2015 implementing the LREB (“Decree 76”).
In this article, we will discuss the main changes to the draft decree (last draft announced for public comments in July 2021) compared to Decree 76.
Conditions for exercising RE activities
According to the draft decree, in order to carry out RE activities in Vietnam, an organization or an individual must meet the following conditions:
- Establish a company with RE activities as one of its registered business activities;
- Publicly disclose information about (A) the business and (B) the RE that the business intends to sell or rent on the websites of the business and provincial housing management authorities (e.g. , the Ministry of Construction) where the company has registered its business activities and where the RE is located); and
- Only exchange REs that fully meet the sales or rental conditions specified in the LREB.
Compared to Decree 76, additional conditions are added to the draft decree to ensure strict compliance with the LREB. This reflects the government’s intention to restore order to the renewable energy market, which has been in a state of disarray in recent years as many developers / agents have illegally received a substantial amount of prepayments from buyers. or put unqualified renewable energies on the market. The draft decree also stipulates that subject companies must meet these new conditions within 12 months from the date of the new decree.
Apart from the aforementioned conditions, if the company is a developer of an RE project, it must have own funds amounting to at least 20% of the total investment capital of the RE project (for an area of less than 20 ha) or no less than 15% of the total investment capital (for an area of 20 ha or more). This requirement is not new to RE developers as it is already stipulated in land laws.
The draft decree also removes the requirement to have a registered capital of at least VND 20 billion, which applies to companies carrying out activities related to renewable energies, in order to reflect the changes made to the LREB under the LAW.
Examples of contracts and other forms
While Decree 76 contains six examples of contracts, the draft decree introduces nine examples of contracts, as follows:
- Contract of sale and purchase of an apartment
- Rental-purchase contract for an apartment
- Sale and purchase contract for a single-family dwelling
- Rental-purchase contract for a single-family dwelling
- Sale and purchase contract / lease-purchase of a house / construction work1
- Rental contract for a house / construction work
- Land use rights assignment contract
- Lease / sublease contract for land use rights
- Contract for the sale of all or part of an RE project
Unlike Decree 76, the Draft Decree does not distinguish between existing dwellings and dwellings to be built in the future, but rather distinguishes between apartments and individual dwellings. This time, the draft decree provides examples of contracts to be used in both cases.
It is important to note that the draft decree seems to require strict compliance with the content of the examples of contracts by stating “Contracts relating to real estate activities […] must be concluded in accordance with the model contracts annexed to this decree ”and“ The parties may add other content to the contract according to each particular case, but this content must not be in contradiction with the terms and content set out in the contract template […]”. This language suggests that the parties should follow the terms and conditions set out in the sample contracts and cannot substantially modify the sample contracts.
The draft decree also includes other examples of forms, such as those for assignment of contracts (i.e. assignment documents) and transfer of RE projects (i.e. application, progress report and approval).
ER project transfer procedure
Under the draft decree, the transfer of all or part of a RE project must follow new procedures, as below.
- RE projects for which an investment policy decision / approval (collectively, “IPA”) has been made before the effective date of the letter of intent (ie.
- RE projects for which an IPA has been completed after January 1, 2021 but which have not received an Investment Registration Certificate (“IRC”) and / or “Investor Approval” 2 must also follow the procedure provided for by the LREB.
- For RE projects which receive an IPA after January 1, 2021 and which have obtained IRC and / or “investor approval”, the parties must comply with the procedure provided for by the LOI.
Although this provision appears to conform to the general rule set out in the LOI and the LREB, it may confuse investors since the procedure under the LOI is different from the procedure under the LREB.
Under the LREB procedure, the parties must first obtain the approval of the project transfer from the Provincial People’s Committee (“PC”) or the Prime Minister (as the case may be) and then sign a project transfer agreement ( “PTA”) (using the contract template discussed above) and close the transaction within 30 days of such approval. Subsequently, although it is not mentioned in the LREB and the draft decree, the parties will probably have to modify the IPA and IRC to reflect the change of investor in accordance with the LOI. Regarding the LOI procedure, the project company will modify the IPA and IRC and submit the PTA to the competent authority for review (as shown below) without the need to obtain approval for the transfer. of the project.
As a notable change, the Draft Decree states that in both procedures, the parties must submit a draft PTA to the CP or the Ministry of Construction (if the project falls under the authority of the Prime Minister) for review in accordance with the LREB and its decrees. Based on the written opinion of the competent authority, which may include certain required modifications to the PTA, the parties should modify the PTA accordingly. This requirement is not stipulated in Decree 76.
The draft decree reflects the intention of the Vietnamese government not only to reform the licensing procedures for RE projects as initially envisaged and regulated in detail in the LOI, but also to tighten up state management over RE business activities (including the transfer of RE projects).