RESTRICTIONS IN REAL ESTATE BUSINESS IN VIETNAM THAT INVESTORS NEED TO KNOW

Real estate is one of the fields that many investors are interested in when investing in Vietnam. However, this activity is limited by many provisions of current law. Join OTIS LAWYERS to learn some restrictions when doing real estate business for foreign investors in Vietnam.

Restrictions on the scope of real estate business

The scope of real estate business of foreign-invested enterprises includes:

• Houses for lease and construction works for sublease;
• For land leased by the State, it is allowed to invest in the construction of houses for lease; invest in the construction of buildings and construction other than houses for sale, lease, or lease-purchase;
• Receive transfer of part or the whole real estate project of the investor to build houses, construction works for sale, lease, lease purchase;
• For land allocated by the State, it is allowed to invest in building houses for sale, lease, or lease-purchase.
• In addition, foreign organizations and individuals have the right to conduct business in real estate brokerage services, real estate trading floors, real estate consulting, and real estate management in accordance with the Law on Real Estate Business 2014.

Thus, the scope of real estate business of foreign-invested enterprises is narrower than domestic enterprises. Accordingly, there are two business activities that foreign investors are not allowed to do while domestic investors can still proceed:

• Firstly, foreign investors are not allowed to subdivide plots for sale of land, invest in building technical infrastructure of cemeteries and graveyards to transfer land use rights associated with such infrastructure.
• Second, for houses and other construction foreign investors are not allowed to buy for sale, lease, or lease-purchase but only rent for sublease.

Limits on the number of houses owned

According to the provisions of Article 161 of the Law on Housing 2014, subjects include: foreign-invested enterprises, foreign investment funds and foreign bank branches operating in Vietnam. Foreign individuals who are allowed to enter Vietnam may buy, rent-purchase, receive as gifts, inherit and own no more than 30% of the number of apartments in an apartment building, if it is a separate house, including: Villas and adjacent houses in an area with a population equivalent to a ward-level administrative unit, they may only buy, rent-purchase, receive as gifts, inherit and own no more than 250 houses.

Decree 99/2015/ND-CP issued on October 20, 2015 provides more detailed regulations, accordingly:

The case in an area with a population equivalent to a ward-level administrative unit. There are investment projects to build commercial houses, including individual houses for sale, lease purchase. Foreign organizations and individuals may own the following number of separate houses:

(i) In case there is only one project with the number of individual houses below 2,500 units. Foreign organizations and individuals may only own no more than 10% of the total number of houses in that project;

(ii) In case there is only one project with the number of individual houses equivalent to 2,500 units. Foreign organizations and individuals are only allowed to own no more than 250 apartments;

(iii) In case there are two or more projects where the total number of individual houses in these projects is less than or equal to 2,500 units. Foreign organizations and individuals may only own no more than 10% of the number of houses in each project.

Limits on the amount of money earned before real estate business forms in the future

The payment of contract value related to real estate formed in the future is made in installments. And it depends on the progress of construction. Before handing over houses and construction to customers. Foreign-invested enterprises are only allowed to collect up to 50% of the contract value. While this maximum rate applicable to domestic investors is up to 70%.

The risk of land expropriation

In fact, many real estate project investors were unable to complete the project on time. And the land was confiscated. The reason for this incident is that investors still face many difficulties in administrative procedures. And the failure to reach an agreement with the people when conducting compensation and ground clearance.

At the same time, to be approved, real estate investment projects for business must conform to master plans, land use plans, urban planning, and rural construction planning. And must follow the implementation plan approved by the competent state agency.

This causes many difficulties for foreign investors. Because they do not know the regulations on land as well as related administrative procedures at Vietnamese state agencies. Affecting the investment activities of foreign investors in Vietnam.

To minimize risks when doing business in this field in Vietnam. Please contact an attorney for consultation. OTIS LAWYERS is always ready to accompany and support investors in the process of researching and investing in the Vietnamese market.

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