In Vietnam, all land is collectively owned and is the property of all the people of Vietnam. Therefore, no individual or organization in Vietnam is permitted to ‘own’ land and there exists only ‘land use rights’ with respect to real property. Nevertheless, despite the fact that real estate is a highly regulated sector, the Vietnamese real property market has been an attractive and vigorous sector for investment in recent years.
This executive brief aims to provide potential investors with an overview of the financial requirements for real estate ventures in Vietnam.
Definition of a Real estate Business
According to the Civil Code of 2015, real estate includes land, houses and construction attached to the land, other properties fixed or attached to the land, houses, and constructions, and other properties as prescribed by law. A real estate business, which is defined under the Law on Real Estate Business of 2014 (LREB), means the investment of capital for the purpose of profit in order to perform any of the activities below:
- Construct, purchase, or receive transfer of real estate for sale or transfer.
- Lease or sublease real estate.
- Make a hire purchase of real estate. This is an activity where the hire purchaser pays an amount of money in advance to the owner and is entitled to use such house or building (the remaining payment is considered rent) and the hire purchaser acquires ownership of the house or building upon full payment of the total purchase amount.
- Provide real estate brokerage services. This is an intermediary activity carried out for the parties in real estate sale, transfer, lease, sublease, or hire purchase transactions.
- Provide real estate trading floor services. The real estate trading floor is a place where real estate sales, transfers, leases, subleases, or hire purchase transactions are carried out.
- Provide real estate consultancy services. This is an activity that provides assistance for real estate businesses at the request of the parties.
- Provide real estate management services. This is an activity that implements one, some, or all of the activities of management, operation, and disposal of real estate as authorized by the house or building owner or a person with land use rights.
Minimum Legal Capital Requirements to Establish a Real Estate Company
Under Article 10.1 of the LREB, a minimum legal capital of VND 20 billion is required to establish a real estate company, specifically: “Organizations or individuals doing real estate business must establish an enterprise or cooperative and must have legal capital which shall not be less than twenty (20) billion dong, except for the cases stipulated in clause 2 of this article”. Decree No. 76/2015/ND-CP, dated September 10, 2015, that further implements the LREB (Decree 76), also reinforces this requirement.
With the implementation of the Law on Investment 2020 (LOI) on January 1, 2021, Article 10.1 of LREB has been amended that removes the requirement of VND 20 billion legal capital and only requires the establishment of a company to carry out a real estate business. Specifically: “Organizations or individuals doing real estate business must establish an enterprise or cooperative, except for the cases stipulated in clause 2 of this article”.
Therefore, legally speaking, the VND 20 billion legal capital has been removed. Nevertheless, such requirement is still applicable in Decree 76 and the licensing authority may invoke this provision to challenge the establishment of a real estate company having legal capital of under VND 20 billion. Even though the risk of being challenged is low, the following arguments can be used to support an application for the establishment of a real estate company having legal capital below VND 20 billion:
- According to Article 156 of the Law on Promulgation of Legislative Documents, in the event that several legislative documents provide different regulations on the same issue, the superior document shall apply. In this case, the law (LOI) is superior to decree (Decree 76) so the provision of LOI on real estate business should be applied, i.e. only the establishment of a real estate company is required to pursue real estate business.
- In practice, there are some real estate companies that are able to register charter capital of less than VND 20 billion, which would support their application for the establishment of real estate company having charter capital below VND 20 billion.
Other Financial Requirements when Implementing a Real Estate Investment Project
In addition to the above, the investor needs to satisfy other requirements, especially with regards to financial capability, if they want to obtain land use rights in the form of land allocated or leased by the State to implement an investment project. Specifically, the land user (e.g. a project company) must satisfy the following minimum conditions:
- Approval of the project by competent authorities in accordance with the law;
- Possessing the financial capacity to ensure that the land is used in accordance with the project implementation schedule, in particular:
- Having its own capital (equity) equal to at least 20% of the total investment for projects using less than 20 hectares of land, or at least 15% of the total investment for projects using 20 hectares of land or more, to implement the project;
- Having the ability to raise the remaining capital to implement the project from credit institutions, foreign bank branches, other organizations and individuals.
- Paying a deposit to the State to secure its obligation to develop the project in a timely manner and in accordance with the LOI; and
- Having not committed any violation of the laws on real estate.
In practice, the competent authorities will also verify whether the proposed land is able to be acquired by the investor or recovered by the State for development of the project before granting land use rights to the land user.
If you have any questions or concerns about investing in the real estate market in Vietnam, our experienced corporate attorneys are always available at email@example.com