Increasing Investors' Responsibility

The property market has been recovering significantly since the beginning of 2015, as prices increase in all segments and inventory declines rapidly. As of May 20, 2015, the total value of real estate inventory was around VND67,443 billion, down VND61,105 billion (47.53 percent) compared to the first quarter of 2013; decrease VND27,015 billion (28.60 percent) compared to December 2013; fell VND1,338 billion compared to April 20, 2015.

 

However, market participants are cautious ahead of July 1st, when some provisions tightening market control will be going into force. Most notable is the 2014 real estate business law stipulating real estate businesses must have legal capital not less than VND20 billion and real estate businesses must be guaranteed by financial and credit institutions in the sale and rental of future housing.

 

Under this law, real estate projects’ investors, before selling or leasing future housing, must get guarantees from qualified banks so that these institutions would assume the financial obligation of investors to customers if the investors fail to hand over housing according to committed schedule. If investors cannot handover according to schedule and the buyers or lessees make the request, guarantee banks would be responsible for refunding advance payments and any other payments to customers under purchase or lease contracts and guarantee contracts.

 

Previously, customers could only rely on luck when doing real estate. There have been many cases of customers being cheated and losing deposits paid for housing, or another more common situation is investors dragging out handover terms, falling behind schedule but receiving no legal blame. With the new regulation, real estate companies will be forced to honour agreements with customers, with the final property purchase contract guaranteed by the banks.

 

Amended Real Estate Business Law stipulates that businesses must make a deposit for real estate projects and prepare guarantee money for home buyers to ensure schedule of projects of which land is allocated or leased by the State, of alteration of land use is approved by the State. The deposit amount is about 1-3 percent of project’s investment. It will be refunded to investors as scheduled in project’s investment progress, except for in non-refundable cases.

 

The Amended Real Estate Business Law also contains the provision of improving financial strength of companies participating in the market. Accordingly, organizations and individuals dealing in real estate must have legal capital of not less than VND20 billion. Enterprises that have yet to meet this condition must fulfil it within one year starting from the date of July 1, 2015. Specifically, all enterprises established after the date of November 9, 2007 must complete their legal capital with VND14 billion, businesses established earlier must register a legal capital of VND20 billion.

 

With such strict regulations, many property businesses have been complaining that activities would be more difficult with higher costs. However, it’s also acknowledged that the amended Real Estate Business Law with strict regulations on the sale of future housing is likely to bring many positive benefits and support the market. The new regulations will help foster market growth as it protects house buyers in a practical way, preventing fraud and misappropriation of funds. The guarantee from a third party, banks in this case, will make the market more transparent and fair, help people feel more secure when purchasing real estate, promote sustainable development in the market.

 

Beside regulations that tighten management, the Amended Real Estate Business Law also contains provisions that are more “breathable”, allowing investors to transfer part or all of a project of which infrastructure has been completed. Under the provisions of the 2006 Real Estate Business Law on project transfer, for a project to be transferred, it must complete 100 percent of clearance compensation, must be approved the detailed planning 1/500, must finish land use payment and complete the infrastructure. The amended law requiring companies only need “clear land” to be able to make a transfer surely will make a significant impact on the M&A real estate market, helping reduce inventory. So from now until the end of 2015, experts predict the M&A wave of real estate projects will be the key point promoting market growth.

 

2015 is considered a successful year for the real estate market. The market has stable upward momentum with inventory reduction and a moderate price increase, with low likelihood of price fever as previous years. The July 1st date for the regulations of tightening market management coming into force is regarded as “clement weather, favourable terrain”, not likely to cause adverse impacts delaying the recovery of the market. Quite the contrary, these regulations will require more responsibility of investors, removing incompetent investors to protect real estate buyers' assets - these are important factors in promoting a healthy market of sustainable development.