The draft decree detailing the implementation of some articles of the amended real estate business law is under discussion to collect opinions. In this process, there is much disagreement on some new contents such as the classification of legal capital into multiple levels for real estate businesses; some argued this would cause difficulties for the application, some even said it was illegal. Real estate conditions are inconsistent with law
The draft on conditions of doing real estate business involves the type of contract, including the transfer of house or house lease, available or to be available in the future; transfer partly or the whole real estate project.
The draft emphasizes that organisations and individuals doing real estate business must have a legal capital of not less than VND50 billion if it was the case of real estate investment for business – subject to authorized state agencies’ decision for investment policy.
As for cases of real estate investment for business not subject to the above, it must have legal capital of not less than VND20 billion.
When discussing this condition of legal capital, Lawyer Truong Thanh Duc, Chairman of law firm Basico, Arbitrator of Vietnam International Arbitration Centre, said that the conditions of real estate businesses “must have legal capital of not less than VND50 billion if it is the case of real estate investment for business, are subjected to authorized state agencies’ decision for investment policy and required to follow investment policy approved in accordance with law on public investment, housing law, urban law” was against the law of real estate business.
According to Lawyers Duc’s analysis, Clause 1, Article 10 of the law provided that organisations and individuals doing real estate business must establish companies and have a legal capital of not less than VND20 billion. Legal capital as explained in law up until now was the minimum amount required for a company to be approved of establishment. Even though the real estate law stipulated that legal capital must not be less than VND20 billion, it could not be understood that there’s another level of legal capital higher than that figure.
One legal capital only is appropriate
“In the 2014 Law on Real Estate Business, there is no rule saying that “real estate services business” and “real estate brokerage services business” didn’t need legal capital. The legal capital requirement of VND20 billion for these services is ridiculous, but if we want changes then an amendment for the Real Estate Business Law is necessary, although it has just recently adopted and has yet to come into effect,” emphasized Lawyer Duc.
Discussing this issue, Mr Nguyen Quoc Hiep, Chairman of Vietnam Construction Contractors Association, also said that the capital condition on real estate company establishment did not need another addition beside the VND20 billion figure stipulated in the Law on Real Estate Business.
“Not to mention, with large projects which worth over a trillion VND of investment, or with businesses who are able to invest in two to three projects simultaneously, the legal capital of VND50 billion is not a problem. So, if we want to have guarantee on financial capacity of enterprises investing in real estate projects in order to avoid the risk of investors being financially incapable, leading to project stalling, then a requirement on owner’ equity ratio when making investment in projects is enough,” stressed Mr Hiep.
Sharing the views of Mr Nguyen Quoc Hiep, Ms Phan Hai Anh, Deputy Director of Vinhomes Real Estate Trading Centre, a lawyer of Vingroup, also said that legal capital registration was part of business registration conducted in business registration agency. So, if there are multiple levels of legal capital as prescribed by the draft decree, it would cause difficulties for the law application. According to Ms Anh, “The Land Law and the Real Estate Business Law already have provisions requiring real estate project investors to ensure owner’s equity ratio (15 percent or 20 percent) of the total capital of the project. Therefore, we propose using only one level of legal capital of VND20 billion for all real estate businesses.”
Regulations need to be more clearly defined
The draft decree detailing the implementation of some articles of the real estate business law defines that besides households and individuals, banks and credit institutions who make land use right transfer or sell mortgaged house or under-construction facilities to recover debt as entities doing real estate business but are not required to have legal capital or to establish a company.
However, Lawyer Truong Thanh Duc said that for small-scale and infrequent real estate business, draft decree should be extended to apply to all organisations and individuals who sell or transfer property as collateral for debt recovery. Because all subjects were entitled to the right of getting and processing mortgage, not private credit institutions only.
Both concepts are used in the draft decree, but Lawyer Duc believed that only one should be used which was the concept of contract sample that was not mandatory so that organisations and individuals could implement more easily. Moreover, the sample should not assign that in case of failing to complete a negotiation; a court should be unanimously selected for settlement in accordance with the law. Doing so was considered an interference in the agreement of concerned parties, contrary to the provisions of the 2010 Commercial Arbitration Act.
For the transfer of property, comments from the business community concerning the draft mostly said that it should be more detailed on the conditions of real estate project transferring.
Accordingly, it’s crucial to have separate provisions for two cases of transferring untouched land and transfer projects under progress, investors already sold future houses to customers. These two kinds of transfer are totally different.
Dinh Thanh
Many Shortcomings Remain in Amended Real Estate Law Related image(s)
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