Navigating Vietnam’s real estate market can be challenging, especially with the recent changes in legislation. The Law on Real Estate Business 2023 (LREB 2023), set to take effect on January 1, 2025, brings significant updates aimed at enhancing transparency and investor confidence.
In this article, we will break down the essential aspects of this law to help you understand its implications, especially for foreign investors.
Key Legislation Governing Real Estate Business in Vietnam
The Vietnamese real estate market is governed by a comprehensive legal framework encompassing several key laws, including:
Law on Real Estate Business (2014)
Enacted to regulate the activities of real estate businesses operating in Vietnam, the Law on Real Estate Business (2014) provides guidelines on various real estate transactions, including the sale, purchase, transfer, and leasing of properties.
This law outlines the requirements for real estate businesses, such as capital requirements, licensing procedures, and operational standards, ensuring a level playing field for all market participants. The Law on Real Estate Business (2014) will be replaced by Law on Real Estate Business (2023) on January 1, 2025.
Law on Land (2013)
The Law on Land (2013) is a comprehensive legal document that governs land management and usage throughout the country. It establishes the framework for land allocation, land leasing, land recovery, and compensation mechanisms.
Notably, this law addresses the issuance of land use rights certificates, which are critical documents verifying ownership and legal rights over land parcels. The Law on Land (2013) will be replaced by Law on Land (2024) on January 1, 2025.
Law on Housing (2014)
Focusing specifically on housing-related matters, the Law on Housing (2014) governs the development, management, and utilization of residential properties. This law outlines the requirements for housing development projects, encompassing planning, design, construction, and quality standards.
Furthermore, the Law on Housing (2014) regulates the sale, lease, and management of residential properties, ensuring that housing is safe, affordable, and accessible to all citizens. The Law on Housing (2014) will be replaced by Law on Housing (2023) on January 1, 2025.
Civil Code
As the foundational legal document, the Civil Code of Vietnam provides the general legal principles governing civil relations, including real estate transactions. It covers a wide range of issues, such as property rights, contractual obligations, and dispute resolution mechanisms.
The Civil Code ensures that real estate transactions are conducted within a clear legal framework, protecting the rights and interests of all parties involved. It serves as the foundation for the specific laws on real estate business, land, and housing.
Overview of the New Law
The Law on Real Estate Business 2023 (LREB 2023), set to replace the LREB 2014, introduces significant reforms aimed at tackling previous shortcomings and enhancing the overall legal framework for real estate transactions in Vietnam. One of the primary goals of the new law is to bring greater clarity and transparency to real estate activities, addressing the ambiguities that often plagued the old legislation.
Key updates include stricter regulations on off-plan real estate sales, where properties must be part of formally approved projects. This move ensures that both developers and buyers engage in transparent and legally sound transactions. Additionally, the new law introduces a maximum deposit limit of 5% for off-plan purchases, safeguarding buyers’ interests and maintaining financial transparency.
The LREB 2023 also empowers buyers by giving them the option to waive bank guarantees if they agree in writing, thus reducing administrative burdens. Moreover, the law stipulates minimum investment requirements for developers, ensuring they have adequate financial backing before undertaking projects. This provision aims to enhance market stability and investor confidence.
Key Changes in the Law on Real Estate Business 2023
Stricter Conditions for Off-Plan Real Estate Sales
Under the new law, developers must ensure that properties sold off-plan are part of formally approved projects, which guarantees that transactions are both transparent and legally sound. This measure addresses past issues where unapproved or speculative projects led to legal and financial uncertainties for buyers.
Additionally, the law caps the maximum deposit for off-plan purchases at 5% of the purchase price. This significant change protects buyers and maintains financial transparency by preventing developers from collecting large sums upfront, which could otherwise be misused or lead to disputes if projects fail to materialize.
Empowerment Regarding Bank Guarantees
While the new law still requires developers to secure a bank guarantee for off-plan projects, it empowers buyers by giving them the option to waive this requirement, provided they agree in writing. This change aims to reduce administrative burdens and costs for both parties, allowing for more flexibility in transactions.
However, buyers need to carefully assess the financial stability of developers before opting out of the bank guarantee, as this provision shifts some risk to the buyer.
Minimum Investment Requirements
Investors must now contribute a minimum of 20% of the total capital for projects under 20 hectares and at least 15% for larger projects. This requirement ensures that developers have sufficient financial backing, which promotes stability in the market and reduces the likelihood of project failures due to inadequate funding. This measure is particularly important for maintaining investor confidence and ensuring that projects proceed as planned.
Impact on Foreign Investors
The Law on Real Estate Business 2023 (LREB 2023) introduces several significant changes that will impact foreign-invested enterprises (FIEs).
One of the most notable changes is the categorization of FIEs into two distinct groups: those subject to the conditions and procedures outlined in the Law on Investment, and those that are not.
This differentiation aims to streamline investment processes and provide more clarity regarding the rights and obligations of foreign investors.
New Classifications for FIEs
FIEs with 50% or less foreign ownership will now enjoy similar rights to domestic companies, a change that opens up a range of new opportunities in Vietnam’s real estate market. Previously, all FIEs faced stringent restrictions, limiting their ability to engage fully in the real estate business.
The new law’s more inclusive approach allows these FIEs to buy, lease, and lease-purchase properties with fewer hurdles, aligning their operations more closely with domestic enterprises.
Expanded Opportunities
This legal shift means that FIEs can now participate more broadly in Vietnam’s real estate market, including buying houses and construction works for resale, leasing, or lease-purchase. They are also permitted to lease land use rights with existing infrastructure within real estate projects, a move that was previously restricted.
By broadening the scope of permissible activities, the LREB 2023 fosters a more attractive and competitive environment for foreign investment.
Implications for Market Stability
The LREB 2023 enhances market stability by ensuring that all real estate enterprises, including FIEs, have adequate financial resources and comply with local regulations.
Additionally, by focusing on financial stability and legal compliance, it protects both investors and consumers, thereby contributing to a more secure and reliable real estate market in Vietnam.
Implications for the Real Estate Market
The Law on Real Estate Business 2023 is expected to attract more foreign investment and boost confidence in the market.
Enhanced Transparency
One of the primary goals of LREB 2023 is to increase transparency in real estate transactions. The law mandates that all properties sold off-plan must be part of formally approved projects, ensuring that both buyers and developers engage in legally sound transactions. This measure helps prevent fraudulent activities and speculative investments that previously led to market instability.
Buyer Protections
The introduction of a maximum deposit limit of 5% for off-plan purchases is a significant step toward protecting buyers’ interests. By capping the initial financial commitment, the law reduces the risk for buyers and ensures that developers cannot collect large sums of money without delivering the promised properties.
Additionally, the provision allowing buyers to defer 5% of the total payment until they receive their ownership certificate adds another layer of security for consumers .
Developer Accountability
For developers, the LREB 2023 introduces stricter conditions that promote accountability and financial stability.
By requiring a minimum capital contribution of 20% for projects under 20 hectares and 15% for larger projects, the law ensures that developers have adequate financial resources before undertaking new developments. This measure is intended to reduce the likelihood of project delays and failures, which can destabilize the market.
Attraction of Foreign Investment
The government expects the new law to attract more foreign investment by providing a clearer and more predictable legal environment. By granting certain foreign-invested enterprises (FIEs) similar rights to domestic companies, the LREB 2023 opens up the market to a broader range of investors. This inclusivity enhances competition, brings in additional capital and expertise, and contributes to the overall growth and development of Vietnam’s real estate sector.
Market Confidence
Overall, the LREB 2023 aims to instill greater confidence in the real estate market. By addressing past issues such as unclear payment methods, inadequate buyer protections, and insufficient developer accountability, the law creates a more robust framework that benefits all stakeholders. This confidence is crucial for sustaining long-term growth and stability in the market.
Choose Russin & Vecchi to Navigate This Challenging Field
Russin & Vecchi is a leading law firm specializing in real estate and construction law in Vietnam. With a deep understanding of the local market and extensive experience in handling complex real estate transactions, we are well-equipped to assist foreign investors in navigating the legal landscape.
Here are some of the key services we offer:
- Legal Consultation: Providing comprehensive legal advice on real estate transactions and investment strategies.
- Due Diligence: Conducting thorough due diligence to ensure compliance with Vietnamese laws and regulations.
- Transaction Support: Assisting with negotiations, drafting contracts, and obtaining necessary approvals.
- Dispute Resolution: Offering expert representation in case of disputes or legal challenges.
For more information on our services and notable projects, visit our website.
By choosing Russin & Vecchi, investors gain a reliable partner with the expertise and local knowledge necessary to navigate Vietnam’s dynamic real estate market. Our commitment to excellence and client-focused approach make us an invaluable asset in achieving successful real estate investments.
