Vietnam: 2023 New Real Estate Business Law – 08 key notes

The 2023 Real Estate Business Law (“New Law”) was approved by the National Assembly of Vietnam with an effective date of 01 August 2024.

In recent years, this New Law along with the 2024 Land Law and the 2023 Housing Law received the significant attention of domestic and foreign enterprises – especially that of real estate enterprises.

Throughout this newsletter, CNC introduces several key notes, of this New Law, with a significant impact on the real estate market, undertaken by Mr. Tran Pham Hoang Tung – Senior Associate and Mr. Pham Nguyen Tan Trung – Legal Assistant.

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Foreign-invested economic organization & overseas Vietnamese

In Vietnam, the scope of real estate business activities of foreign-invested enterprises is more limited than that of domestic enterprises, as provided in Article 11.3 of the 2014 Real Estate Business Law (“Previous Law”). Additionally, the Previous Law does not define “foreign-invested enterprise”. Therefore, regardless of the amount of foreign capital, all enterprises involving foreign capital are treated as “foreign-invested enterprises”.

However, there are some notable changes in the New Law. Specifically, the New Law uses the term, “foreign-invested economic organization”, instead of “foreign-invested enterprises” to harmonize the regulations of the 2024 Land Law and the 2020 Investment Law. Additionally, the New Law references the Investment Law to divide the “foreign-invested economic organizations” into 02 types, based on the majority level of capital ownership as follows:

• Foreign-invested economic organizations belonging to cases where the requirements and investment procedures for foreign investors shall comply with the 2020 Investment Law (organizations with at least 50% of the charter capital are controlled by foreign elements as provided for in Article 23.1 of the 2020 Investment Law).
• Remaining foreign-invested economic organizations.

The scope of real estate business activities of enterprises of Group (1) continues to be more limited than domestic enterprises.[1] On the flip-side, the enterprises of Group (2) are treated similarly to domestic enterprises.[2]

The New Law also treats overseas Vietnamese – holding Vietnamese citizenship – similarly to that of domestic Vietnamese citizens to distinguish from overseas Vietnamese without Vietnamese citizenship,[3] while the Previous Law treats all overseas Vietnamese similarly regardless of their Vietnamese citizenship.[4]

Division of “foreign-invested economic organization”

Transfer of a real estate project

The transfer of a real estate project under the New Law is more favorable than the Previous Law.

Firstly, the land use right certificate is not required in the transfer of a real estate project. Instead, the New Law requires only that the project transferor obtain approval from the competent authorities on land allocation or land lease or conversion of land use purpose and complete the financial obligation(s) regarding the land of (as part of) the project to be transferred.[5] This new regulation is time and cost efficient as it reduces a significant amount of time and cost for the parties.

Changes in the requirements of transfer of a real estate project

Additionally, the New Law addresses the contradiction among laws regarding the transfer of a real estate project for foreign-invested enterprises being transferees of the project involving land allocated with the collection of land use fees or land for rent with a lump sum payment. Previously, the laws on real estate business provided that the State conduct the expropriation of the project’s land of the transferor to grant to the transferee.[6] However, the laws on land provided that the parties are entitled to conduct the project transfer directly without the State’s land expropriation.[7]

The New Law addresses this contradiction by referring to the 2024 Land Law,[8] thereby simplifying administrative procedures and alleviating the concerns of the foreign-invested enterprises involved in M&A transactions on real estate in Vietnam.

Strengthening the financial safety of real estate enterprises

The financial safety of enterprises conducting real estate business activities (“real estate enterprises”) is one of many important factors for the sustainable development of the real estate market. The most recent and typical example is the “turmoil” of the real estate market since the end of 2021 caused by the lending standards on credits tightened by banks, the default on bonds of real estate enterprises, and major criminal cases regarding the real estate market.

Under the New Law, real estate enterprises are required to meet financial safety such as:[9]

• An acceptable ratio of an outstanding credit balance and outstanding bond payments to owners’ equity;
• The owners’ equity of the real estate enterprise conducting the real estate project must be at least 15% or 20% of the total investment capital (depending on the land use scale);
• Ensuring the capabilities of capital mobilization to conduct the project investment;
• The owners’ equity must be sufficient to ensure the aforementioned percentage for each project – for multiple ongoing real estate projects that are implemented by a real estate enterprise.

Any failure to comply with the above requirements is considered a “prohibited act in real estate business activities”. [10] The Government of Vietnam provides the details of these requirements.[11]

These new requirements of the New Law are expected to strengthen the financial safety of real estate enterprises.

Statutory method of payment via credit institutions

In 2012, the Communist Party of Vietnam gave a direction of “gradually increasing the implementation of non-cash payment methods in real estate transactions”.[12] This direction is expected to ensure the transparency of the real estate market to prevent money laundering via real estate transactions and the sustainable development of the real estate market.

However, the Previous Law which was passed in 2014 had no provisions setting out that all payments of real estate transactions had to be made via credit institutions. During the effective period of the Previous Law, the lack of transparency in real estate prices contributed to the loss of tax revenue in the state budget.

The New Law supplements the new provision (Article 48.2) that all project developers and real estate enterprises shall receive payments from their customers in real estate transactions via their accounts opened in domestic credit institutions or branches of foreign banks operating legally in Vietnam.

This supplement is expected to enhance the transparency of prices and information on real estate transactions to comply with the national direction.

Bank guarantee for off-plan residential properties

The Previous Law requires that developer’s financial obligation of the real estate projects for their customers be guaranteed by banks prior to the conclusion of sale and purchase agreements. Accordingly, whenever a developer does not hand over the residential properties to its customer as agreed, the customer is entitled to request the bank to reimburse the total amount that was previously paid to the developer.[13]

This regulation tends to protect the customers’ interests, however, due to the lack of detailed provisions, in practice, there are very few cases in which customers succeeded in receiving such a total amount from the guaranteed bank. Specifically, the Previous Law does not clearly elaborate on whether or not the developers or the banks are obligated to issue a bank guarantee to each customer. Thus, when the sale and purchase agreements are concluded, many developers and banks do not do so, instead, they issue a copy of the framework agreement documentation regarding the guarantee having been issued.

The main objective of such documentation is to comply with the requirements for off-plan properties put into the market, rather than the protection of customers’ interests. There are many instances in which customers seek competent authorities due to developers’ delay regarding the handover of residential properties, however, there is no legal resolution to help these customers.

The New Law addresses this drawback as it clearly requires that the bank concluding the guarantee agreement with the developer, issue “bank guarantees” and send them directly to the developer. Then, within 10 business days (or other timeframe as agreed) from the date of signing the sale and purchase agreements, the developer provides each customer with these bank guarantees. Additionally, the developer is only entitled to receive payments from customers after these customers receive the bank guarantees.[14]

Furthermore, the New Law provides customers an option to refuse bank guarantees regarding the developer’s financial obligation. It is a favorable option for customers who desire to buy residential properties with preferential prices from reputable developers.[15]

Regulations on bank guarantee for off-plan residential properties

Requirements for off-plan properties put into the market

The Previous Law simply explained that off-plan properties are entitled to be put into the market only when the following requirements are met:[16]

• Documentation including that of: land use rights, project dossiers, design of for-construction, construction permit, documents relating to acceptance.
• Notification to the Department of Construction and the acceptance of such Department.

Under the New Law, there are additional requirements for off-plan properties entitled to be put into the market, such as:[17]

• Completion of public disclosure of information on real estate properties and projects;
• Project developer’s completion of financial obligations to the State regarding land;
• Being within the approved real estate projects and the approval specifically stating that the project objective is to invest and build residential properties or construction works for sale or lease-purchase;
• Compliance with the approved land use plan, all types of planning, and time limits for project implementation.

These additional requirements are expected to protect the customers’ interests more effectively, and thereby enhancing the safety and transparency of real estate transactions.

Detailed provisions on deposits regarding off-plan properties

Under the law, developers of real estate projects are only entitled to sell off-plan properties once they are in compliance with the legal requirements, thereby receiving installment payments as agreed upon in the sale and purchase agreements. However, in practice, due to capital demand for project development, many developers receive payments which are called “deposits” (Vietnamese: tiền đặt cọc) from customers prior to off-plan properties meeting the requirements of being put into the market. Accordingly, these payments act as “insurance” for the customers for the right to purchase such properties once the requirements of putting them into the market are met, along with preferential rights (if any).

The Previous Law does not prohibit developers from receiving such “deposits”, and the 2015 Civil Code does not set any limitation on this amount. Under these legal regulations, the customers lack a shield against the risk that developers require high-value deposits (some reported cases show that the amount may be up to 95-percent (95%) of the property values) to misappropriate such amounts and discontinue the project implementation.

The New Law address this drawback and outlines detailed provisions in favor of customers regarding deposits as follows:[18]

• The developer is entitled to receive deposits which are not to exceed 5% of property value;
• The receipt of deposits is allowed only when off-plan properties meet the requirements of putting them into the market;
• Property values must be stated in deposit agreements;
• Any authorization to a third party to sign deposit agreements is not

Regulations on deposits under the New Law

Tightening up the practice of “division and selling of vacant land plots”

“Division and selling of vacant land plots” (Vietnamese: phân lô bán nền) is a business method where the developers divide a whole vacant land plot into smaller ones and then sell such plots to individuals who will construct residential properties. This business method is popular in many housing projects due to the return of capital on a short term basis, and the facilitation for both developers and customers.

Prior to the effective date of the New Law, “division and selling of vacant land plots” was prohibited in areas consisting of:[19]

• Wards of special urban areas (Hanoi and Ho Chi Minh City), class-1 urban areas under the central government (Hai Phong, Da Nang, Can Tho);
• Areas with the high-level requirements of landscape architecture, the central areas and areas surrounding the works are the urban architectural highlights.
• Land adjacent to a route which is classified as a regional (or higher-level class) route or is a main urban landscape.

The New Law expands the geographical space of such areas which consist of:

• Wards, districts, cities of special urban areas, class-1 urban areas, class-2 urban areas and class-3 urban areas;
• Belonging to cases of the auction of land use rights for investing in residential construction projects under the Land Law.

Additionally, in other areas, “division and selling of vacant land plots” is only conducted in areas allowed by the provincial-level People’s Committees.[20]

Areas where “division and selling vacant land plots” was disallowed

“Division and selling of vacant land plots” has contributed to the speculation of land and the shortage of land supply in recent years. Tightening up the areas allowing the “division and selling of vacant land plots” under the New Law is expected to reduce such consequences, improve land use effectiveness and preserve urban planning and aesthetics.

Written by:

Senior Associate Tran Pham Hoang Tung Phone: (84) 901 334 192 Email: tung.tran@cnccounsel.com

Legal Assistant – Pham Nguyen Tan Trung Phone: (84) 347 924 900 Email: trung.pham@cnccounsel.com

[1] Article 10.4 of the New Law.

[2] Article 10.5 of the New Law.

[3] Article 10.2 & 10.3 of the New Law.

[4] Article 11.2 of the Previous Law.

[5] Article 40.3 of the New Law.

[6] Article 51.3 of the Previous Law.

[7] Article 83.2 of Decree No. 43/2014/ND-CP dated 15 May 2014 of the Goverment detailing the implementation of a number of articles of the Land Law, amended by Decree No. 148/ND-CP dated 18 December 2020 of the Government amending a number of Decrees detailing implementation of the Land Law.

[8] Article 42.3 of the New Law.

[9] Article 9.2(b) & 9.2(c) of the New Law.

[10] Article 8(1) of the New Law.

[11] Article 5 & 6 of Decree No. 96/2024/ND-CP dated 24 July 2024 of the Goverment detailing the implementation of a number of articles of the Law on Real Estate Business.

[12] Resolution No. 19-NQ/TW dated 31 October 2012 of the 11^th Central Committee of the Communist Party of Vietnam on continuing the renovation of policy and laws on land in the period of promoting comprehensive renovation and foundation establishment for the transformation into fundamentally a modernity-oriented industrialized country by 2020: “…The State shall proactively regulate the market via the law of supply and demand; gradually increase the implementation of non-cash payment methods in real estate transactions; review the criteria for selection of investors to ensure the investors’ capacities for implementation of real estate projects“.

[13] Article 56 of the Previous Law.

[14] Article 26.6 of the New Law.

[15] Article 26.3 of the New Law.

[16] Article 55 of the Previous Law.

[17] Article 24 of the New Law.

[18] Article 26 of the New Law.

[19] Article 41 of Decree No. 43/2014/ND-CP dated 15 May 2014 of the Goverment detailing the implementation of a number of articles of the Land Law, amended by Decree No. 148/ND-CP dated 18 December 2020 of the Government amending a number of Decrees detailing implementation of the Land Law.

[20] Article 28.1(a) & 31.6 of the New Law.