The Law on Real Estate Business 2014 introduces many new measures to protect real estate buyers. These measures are intended to restore confidence of many buyers who have not been treated well by real estate developers for the last couple of years. In particular,
(1) a buyer can now retain 5% of the contract price until the buyer gets the official title document (commonly called as “red book”) for the purchased property. In addition, a real estate developer has the obligation to start the procedures for having red books issued to its buyers within 50 days from the date of hand-over. Under the old regulations, many real estate developers fail to deliver the “red books” to their customers for years after receiving all the payments. Without a red book for his/her purchased property, a buyer cannot legally sell their houses which become illiquid investments;
(2) for a sale of a house under development, a real estate developer can only receive up to 70% of the contract price (or 50% with FIE developer). It looks like that a FIE developer does not get national treatment protection when it comes to collection of pre-sale proceeds;
(3) a real estate developer must provide a bank refund guarantee from an approved credit institution for its obligations to refund advance payments that it has received from its buyers. This measure if properly implemented could make a purchase of house under development much more secure. After giving a refund guarantee, a prudent bank will likely closely monitor a real estate developer’s use of pre-sale proceeds and development activities. It is not clear if this requirement only applies to projects developed since 1 July 2015 or also existing projects;
(4) the Government will introduce standard form contracts used for real estate business. It is not clear if these standard forms will be mandatory or optional. If these forms are mandatory then this measure may be counterproductive given that it is unlikely a standard form contract can apply to many different types of real estate projects and transactions;
(5) a real estate developer must enter into sale contract directly with buyers and cannot authorize other companies to do so. This measure aims at reducing “fake” sellers in real estate projects;
(6) a real estate developer can only start selling houses under development after the local construction authority certifies that the project satisfies all required conditions for selling houses under development. This measure may add another layer of protection for buyers. However, having another approval will certainly slow down development process and incur unnecessary costs for real estate developers given the bureaucracy and inefficiency of government authorities in Vietnam; and
(7) a real estate buyer buying a house under development from a real estate developer can now sell the purchased house even after the house has been handed-over to the buyer provided that the application for the house’s red book has not been submitted. Under the old regulations, before hand-over of a house under development, the buyer can “sell” the house by selling the house purchase contract signed with the real estate developer. However, after hand-over of the house, the house purchase contract is deemed to be terminated and cannot be transferred. Coupled with the fact that the red book for the purchased house is usually not yet issued yet at the time of hand-over, a buyer holding a handed-over house cannot legally sell his/her house until the red book for the house is issued. The change introduced by Law on Real Estate 2014 has resolved this irony for numerous buyers in the market.