To limit housing short-sales, commonly known as “selling houses on paper” and prevent risks for real estate buyers in Vietnam, the Ministry of Construction recently announced a draft of the amended Law on Real Estate Business. This is seen as a necessary step to re-establish the real estate market.
The frozen real estate market has caused a series of projects in Vietnam to stay unsold. This tough time revealed market inadequacies most explicitly. As soon as cash flows are not channelled into the market, a series of construction projects have stopped immediately. Even, many investors have to sell their projects to other investors or run away because of no money. This has distressed thousands of customers who have paid a certain percentage for future house ownerships.
Binding regulations on future products
Buying unconstructed houses is one of the biggest risks to investors when they enter the real estate market. To address this reality, the draft to the amended law announced recently by the Ministry of Construction supplements a lot of tighter regulations on real estate investment and business.
According to the draft, in addition to existing regulations on conditions on real estate project business like quality assurance, used houses must satisfy quality status agreed by concerned parties in their contracts, have no ownership disputes, and do not lie on locations banned from construction.
Under the current laws, to sell future assets, commonly known as “selling on the paper”, investors must have construction permits or project profiles and design drawings approved by competent authorities. But, according to the draft law, to sell future assets, investors must have project documents and design drawings approved by competent authorities and construction permits. Thus, the new ruling requires investors to satisfy two conditions instead of just either of the two conditions as previously.
This draft law also specifies stricter requirements for investors of real estate projects. Accordingly, project investors are only allowed to sign selling, leasing and hire-purchase contracts only when future real estate is guaranteed by financial institutions or banks for fulfilling their obligations in contracts signed by both parties.
Guaranteeing customer rights
According to experts, this new regulation is very reasonable. This will also create more favourable conditions for individuals and businesses to have more opportunities to access loans from banks as their future assets can be used as mortgages at banks.
When an intermediary, e.g. bank or financial institution, guarantees and assesses the feasibility of projects before customers decide to buy future products, it will help minimise risks for buyers. And, this measure will also enhance the reputation of real estate projects.
An economist said: "The guarantee of financial institutions or banks will help organisations and individuals buy houses with their rights and interests guaranteed because banks will act on the behalf of investors if such investors fail to perform their obligations specified in contracts signed by the both side. At the same time, banks also keep collateral assets of investors."
The amendment to the Law on Real Estate Business will facilitate real estate transactions and reduce the "bubble" of real estate market. It is expected the new ruling will generate the healthy development of the real estate market.
Luong Tuan
Vietnamese
