The new Real Estate Business Law 2014, Housing Law 2014 and most recently Decree 99/2015 implementing the Housing Law 2015 have changed substantially the way that a residential housing project is financed. Set out below are some of the key changes most of which took effect from December 2015:

• Under Real Estate Business Law 2014, a real estate developer can now sign sale and purchase contracts regarding villas or other landed houses and receive pre-sale proceeds from villas buyers without having to build the foundation of the villas or landed houses. Under Housing Law 2005, in order to sign sale and purchase contracts regarding villas or other landed houses, the developer must, among other things, complete the foundation of the villas or landed houses;

• Housing Law 2014 removes the ability of a real estate developer (level 1 developer) to sell land with infrastructure to another developer (level 2 developer) who in turn develops a housing project on the purchased land. This scheme was very common under Housing Law 2005 since it allows a level 1 developer to obtain financing from other level 2 developers before having to build the foundation of the relevant buildings. Now, under Decree 99/2015, level 1 developer and level 2 developer must form a new entity to develop a housing project on the relevant piece of land;

• Before the foundation of an apartment building is complete, Housing Law 2014 no longer allows the developer to enter into various non-sale contractual arrangement (e.g. capital contribution contract, business co-operation contract, or deposit agreement) with customers to raise financing from these customers in return of right to purchase apartments from the developer. Instead, the customers who enter into non-sale contractual arrangements before the foundation of an apartment building is complete should only be entitled to receive either cash or shares from the developer. This requirement is much stricter than Housing Law 2005 which allows up to 20% of the apartments to be allocated via non-sale contractual arrangements before the foundation of an apartment building is complete; and

• Article 69 of Housing Law 2014 limits the sources of financing for a commercial residential housing project to (i) developer’s equity, (ii) proceeds from non-sale contractual arrangements (subject to the restriction above), (iii) pre-sale proceeds for sale and purchase contracts, and (iv) financing from financial institutions in Vietnam (it is not clear if an offshore loan or offshore bond issuance is now excluded by this requirement). Under Housing Law 2005, “other sources of financing” are permitted. This suggests that a developer may not be able to use financing from sources which are not listed in Article 69 of Housing Law 2014.

Parts of this post are contributed by Nguyen Bich Ngoc, a VILAF associate.