FDI Real Estate Businesses: Paid-in Capital Must Be Completed before Fundraising

To address this reality, the Hanoi People's Committee has issued a series of regulations on adjustment and extension to ongoing projects and foreign-acquired projects.

 

The Department of Planning and Investment said the capital city granted construction permits to 95 FDI projects of which 88 projects were allocated 1,500 hectares of land. Of these, 66 projects are involved in construction of commercial centres and offices for rent, 17 projects are related to urbanisation, and five projects are to develop golf courses and amusement parks.

 

Three of 88 projects allocated lands have not carried out site clearance. According to the city’s Department of Planning and Investment, 82 projects are under construction but their progress is still slow. Even some investors deliberately violated approved planning, including DA Euroland project invested by TSQ Vietnam in Mo Lao urban areas.

 

According to many investors, stuck site clearance slows project progress. The site clearance for Nam Thang Long project has not been completed since it was launched in 2005. However, some projects are still belated although site clearances were completed. Mo Lao urban zone project invested by Booyoung Vina Co., Ltd remained untouched although the site was transferred years ago.

 

According to the Hanoi People’s Committee, many foreign-invested real estate projects are fraught with capital difficulties. In the first quarter of 2012 alone, nine FDI projects were handed over to domestic investors, five projects were forced to suspend because investors faced difficulties, 12 projects had mismatched registered addresses with registration certificates, four projects were dissolved, and 16 projects applied for capital transfer (seven projects were wholly took over by foreign investors, seven projects were wholly acquired by Vietnamese investors, and two wholly foreign-invested projects were partially purchased by Vietnamese companies.)

 

Despite being branded foreign direct investment (FDI) projects, most of them have resorted to local financial sources. According to the city’s statistics, foreign-invested real estate projects raised US$494 million from domestic credit institutions, accounting for 13 percent of total investment, US$463 million from retail investors, accounting for 12 percent, and US$1.22 billion from foreign financial institutions, accounting for 33 percent.

This reality forced the Hanoi People's Committee to impose regulations to limit domestic fundraising by foreign-invested projects. Accordingly, property projects essentially have clear terms, conditions and procedures for project transfer and capital transfer to foreign investors. It also promulgated more flexible regulations on adjusting and extending project schedules.

 

In case a company has only one project, capital transfer is also project transfer. However, in case such company has many projects, the transfer is not clear. For that reason, it is necessary to elucidate capital transfer and project transfer.

 

In addition, it is important to supplement a regulation that the company must complete paid-in capital (or contributed capital) for the project before mobilising capital or borrowing capital for it. Besides, regulations on land-use forms, rights and obligations of stake sellers and acquirers will also be added.

 

Regarding the operating duration of foreign-invested projects attached to land use, Hanoi proposed imposing the regulation of the Investment Law which specifies no more than 50 years. In case projects sell dwelling houses, the duration is longer but must not exceed 70 years.

 

The Hanoi People’s Committee also proposed amending the content of Article 5 of Decree No. 153/2007/ND-CP detailing and guiding the implementation of the Law on Real Estate Business. Accordingly, the percentage of investment capital owned by primary investors is suggested to be changed into “not lower than 50 percent of total investment capital of the project approved.” Vietnamese standard auditing and accounting is also proposed to impose on foreign contractors.