Decree No. 76/2015/ND-CP (Decree 76) is the current decree implementing the 2014 Law on Real Estate Business (the LREB). Following the recently effective 2020 Law on Investment has made several changes to the LREB, making the Decree 76 obsolete and no longer suitable. Because of this, the Government decided to develop a new decree to replace Decree 76 (the Draft Decree), which was made public in July 2021. The Draft Decree provides several new provisions regarding real estate business.

This executive brief aims to provide potential investors with an overview of the potential regulatory changes in the real estate business in Vietnam under the Draft Decree as compared to the current legal framework.

Requirements for Real Estate Business

Requirements for organizations, individuals conducting real estate business

Currently, Decree 76 provides a minimum legal capital of VND20 billion to establish a real estate enterprise, specifically: ‘Any organization or individual wishes to conduct real estate trading must set up an enterprise or cooperatives […] which has an amount of legal capital of not smaller than VND 20 billion, […]’. This provision is to reinforce the condition set out in Article 10 of the LREB regarding the requirement for conducting real estate business.

However, the implementation of the 2020 Law on Investment sees that this condition is amended by having the minimum legal capital removed. In particular, this condition now reads: ‘Any organization or individual engaged in real estate business must establish an enterprise or cooperative (hereinafter referred to as “the enterprise”), […].’ The Draft Decree further reinforces this new provision by removing the minimum legal capital and only requiring organizations, individuals conducting real estate business to establish an enterprise. For further information on this financial requirement, please have a read at: https://letranlaw.com/insights/financial-requirements-for-real-estate-business-in-vietnam/.

In addition, the Draft Decree reinforces the financial condition set out in Decree No. 43/2014/ND-CP guiding the 2013 Law on Lands in which the investors of real estate project must have its own capital (equity) equal to at least 20% of the total investment for projects using less than 20 hectares of land, or at least 15% of the total investment for projects using 20 hectares of land or more, to implement the project. Besides, if previously, the determination of the total investment capital would be based on the total investment capital registered by the investor reflected in the Investment Registration Certificate. Instead, the Draft Decree provides further elaboration that the investor’s capital shall be determined based on the latest audited financial statement of the investor or independent audit statements of its enterprise (which made in the year of investment or the previous year adjacent to the year of investing in real estate business).

Real Estate Business Contracts and Transfer of Real Estate Business Contracts

Real estate business contracts

Both Decree 76 and the Draft Decree set out several model contracts for various forms of real estate business. The Draft Decree additionally provides contracts for sale and hire purchase of apartments and of individual houses as model contracts.

More importantly on the legal validity of model contracts, whilst Decree 76 merely states that the model contracts are used for reference purposes only (the parties may amend or supplement the contracts as they wish, so long that they do not violate the law), the Draft Decree, on the other hand, requires all real estate business contracts to be developed based on the model contracts. The parties are only permitted to supplement the contracts as long as they do not violate the law; they may not amend any provision written in the model contracts. Though this restricts the flexibility of negotiation, it ensures transparency and protects rights and interests of parties in the real estate transaction.

Furthermore, the Draft Decree requires that contracts for sale or hire purchase of residential houses, buildings and for transfer of the whole or a part of real estate project must also include the transfer of land use right whilst Decree 76 does not clearly provide this. This requirement helps reduce the number of potential disputes in real estate business.

Transfer of contract for sale or hire purchase of residential houses to be formed in the future or for hire purchase of existing houses, buildings

Decree 76 sets out different conditions and procedures for transfer of contract for sale or hire purchase of residential houses to be formed in the future and for transfer of contract for hire purchase of existing houses, buildings. However, to read between the lines, the conditions and procedures for these two types of transfer are almost identical, with the only difference being the required documents. In fact, the Draft Decree simplifies the issue by merging the conditions and procedures of the two types of transfer for clarity.

The Draft Decree provides two additional requirements for transfer of contract for sale or hire purchase of residential houses to be formed in the future or for hire purchase of existing houses, buildings, specifically: (i) the contract must be made based on the model contracts; and (ii) contracts for sale or hire purchase of houses, buildings must not be subject to disputes by a third party. As analyzed above, the requirement of using (or supplementing) the model contracts ensures that the real estate contracts are not poorly drafted, preventing possible loopholes or disagreements. This provision does not have retroactive effect, meaning that this condition shall not be applied to contracts executed before the effective date of this Draft Decree. Meanwhile, the second requirement ensures that the real estate contracts shall not be disputed by any third party, protecting the lawful rights and interests of the buyer. The two new conditions seek to further reinforce real estate transactions and greatly reduce relevant potential disputes.

Transfer of Real Estate Projects

Another highlight when compared with Decree 76 is that The Draft Decree sets out principles to conduct transfer of the whole or a part of real estate projects. One of these principles states that the procedures set out in the Draft Decree shall not be applied to the transfer of (i) real estate projects that have their investment policy accepted under Article 29.3, Article 29.4 of the 2020 Law on Investment; and (ii) real estate projects that have an investment registration certificate in accordance with laws on investment. These transfers must instead follow the procedure set out by laws on investment. Having said, the Draft Decree still requires the parties in these cases to send the draft transfer contract and reports on the performance of the whole or a part of the project to provincial People’s Committee or to the Ministry of Construction (depending on the project) for inspection. If these agencies do not voice any concern within 20 days, the parties may execute the contract.

If you have any questions or concerns about investing in the real estate market in Vietnam, our experienced corporate attorneys are always available at letran@corporatecounsels.vn