FORMS AND TIMING OF CAPITAL MOBILIZATION IN THE BUSINESS OF COMMERCIAL FUTURE HOUSING: PRACTICE IN HỒ CHÍ MINH CITY
FORMS AND TIMING OF CAPITAL MOBILIZATION IN THE BUSINESS OF COMMERCIAL FUTURE HOUSING: PRACTICE IN HỒ CHÍ MINH CITY
Mai Hoàng Phước
MSc, Lecturer at the Faculty of Law – University of Economics and Law (VNU-HCM)
Vũ Như Bách
Lawyer – Hồ Chí Minh City Bar Association
ABSTRACT
In real estate business activities, capital mobilization from buyers plays a crucial role. Early capital mobilization helps businesses secure financial resources to quickly and efficiently implement project construction. However, the current legal regulations on the timing and methods of capital mobilization from buyers are not entirely clear. This has led to situations where some investors mobilize capital from customers and then use it improperly, affecting consumer rights. Within the scope of this article, the authors analyze the regulations on the forms and timing of capital mobilization, and provide some recommendations to protect buyers’ rights and contribute to creating a transparent and healthy real estate business environment.
Keywords: capital mobilization, real estate business, future housing
I. CAPITAL MOBILIZATION IN THE BUSINESS OF COMMERCIAL FUTURE HOUSING
Capital mobilization in the business of commercial future housing is an activity by investors to create financial resources for implementing commercial housing projects. This activity can be carried out in various forms and is an important part of the development process of commercial housing projects. However, it must comply with the principles and forms prescribed by law. Based on a comparison between the 2014 Law on Housing and the 2023 Law on Housing, the principles and forms prescribed by law have not fundamentally changed.
First, regarding principles, organizations and individuals mobilizing capital must have sufficient conditions to mobilize capital according to legal regulations. They must ensure transparency, use the mobilized capital for the intended purpose of housing development, and not use the mobilized capital for other projects or purposes (Article 68 of the 2014 Law on Housing and Article 116 of the 2023 Law on Housing).
Second, regarding forms, the signing of capital mobilization contracts for investment in commercial housing construction can only be conducted through the following forms: i) capital contribution, investment cooperation, business cooperation, joint ventures, and associations of organizations, households, and individuals; ii) advance payments under sale, lease, and lease-purchase contracts for future housing; iii) loans from credit institutions and financial organizations operating in Vietnam (Clauses 2, 3, and 4 of Article 69 of the 2014 Law on Housing and Clause 1 of Article 115 of the 2023 Law on Housing).
If the capital mobilization contracts are not in accordance with regulations, they are not legally recognized, and the investor is subject to penalties according to legal regulations and must compensate for damages to capital-contributing participants (Clause 1 of Article 19 of Decree 99/2015/ND-CP guiding the 2014 Law on Housing).
Mobilizing capital from advance payments, deferred payments, or installment payments of customers under contracts for the sale and lease-purchase of future housing is a common form in housing project business. This is because the investor will access capital as soon as the construction begins from the foundation. It can be understood that the housing construction, aside from the investor’s equity and loans, primarily relies on the payments from homebuyers according to the housing sale contract (Toàn, 2023).
According to current legal regulations, if the investor wants to mobilize capital in this form, they must send a document to the Department of Construction where the housing is located, along with papers proving that the housing meets the conditions for sale or lease-purchase (Clause 1 of Article 55 of the 2014 Law on Real Estate Business).
If the project or housing for sale or lease-purchase is mortgaged, the investor must attach documents proving that the mortgage has been released, or a memorandum of understanding between the buyer, the lease-purchase buyer, and the mortgagee stating that the mortgage does not need to be released and the housing can be sold or lease-purchased. If there is no mortgage, the investor must clearly commit to bearing responsibility in the document sent to the Department of Construction. Within 15 days from the receipt of the investor’s application, the Department of Construction must check the documents.
If the documents are sufficient, the Department of Construction must issue a notice to the investor stating that the housing meets the conditions for sale or lease-purchase; if the documents are insufficient, a written explanation stating the reasons must be provided. If, after the Department of Construction issues a notice that the housing meets the conditions for sale or lease-purchase, the investor does not sell or lease-purchase but instead mortgages the housing, the sale or lease-purchase of such housing after the mortgage can only be carried out when the conditions are met and with a notice from the Department of Construction (Point b, Clause 2 of Article 19 of Decree 99/2015/ND-CP).
Additionally, before selling future housing, the investor must obtain a guarantee from a commercial bank with sufficient capacity to fulfill the investor’s financial obligations to customers in case the investor fails to deliver the housing as agreed with the customer (Clause 1 of Article 56 of the 2014 Law on Real Estate Business). If the investor has not yet handed over future housing, the homebuyer can make multiple payments with the total value not exceeding 70% of the contract value (the first payment not exceeding 30% of the contract value) (Article 57 of the 2014 Law on Real Estate Business).
Comparing the regulations on conditions for bringing future housing into business under the 2023 Law on Real Estate Business with the 2014 Law on Real Estate Business, it can be seen that the basic regulations of the 2014 Law on Real Estate Business have been inherited and clarified, with additional conditions included.
Notably, the 2023 Law on Real Estate Business stipulates that “housing must be within a real estate project that has been approved by a competent state agency according to legal regulations, and the approved project includes the purpose of investing in housing construction for sale and lease-purchase” (Clause 5 of Article 24 of the 2023 Law on Real Estate Business). Additionally, the project investor must complete all financial obligations regarding land, including land use fees, land rental fees, and all related taxes, fees, and charges (if any) to the State as stipulated by law for the land associated with the housing to be brought into business (Clause 6 of Article 24 of the 2023 Law on Real Estate Business).
Thus, compared to the previous regulations, the 2023 Law on Real Estate Business has tightened the conditions that investors must meet to bring future housing into business.
II. CURRENT SITUATION OF CAPITAL MOBILIZATION ACTIVITIES IN THE BUSINESS OF FUTURE HOUSING FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF REAL ESTATE BUYERS IN Hồ Chí Minh CITY
- Current legal situation of capital mobilization activities in the business of future housing
Real estate business activities are strictly managed by the state with regulations on the forms of capital mobilization and the timing when investors are allowed to bring products into business to ensure transparency in real estate transactions and legal safety for citizens participating in these transactions (Hùng, 2014). However, investors are finding ways to “dodge” legal regulations or intentionally violate them despite potential fines. In such cases, investors turn to the provisions of the 2015 Civil Code on civil transactions such as reservation, deposit agreements, consultation, loan contracts, authorization, and exclusive agreements to avoid direct regulations from real estate and housing laws.
First is the form of deposit, deposit agreements, and reservation when buying future housing products. This form has caused many differing opinions regarding its legality and legal interpretation. For example, the content of the response in Document No. 279/QLN-BĐS dated October 21st, 2016, of the Housing and Real Estate Market Management Department (Ministry of Construction) states: “If the purpose of the deposit is only to ensure the conclusion or implementation of a housing sale contract to be signed, and the investor does not use the deposit for capital mobilization to carry out the housing construction project, then the deposit in this case is not a form of capital mobilization.”
It can be seen that this document facilitated investors in mobilizing capital through deposits, with some investors collecting deposit amounts exceeding 30% of the housing sale contract value. In practice, when a deposit has been made for a long time, but the project has not yet been implemented, buyers who complain or accuse the Department of Construction receive a response stating that this is a civil dispute and are guided to take the case to court for resolution.
Currently, according to the provision in Clause 5 of Article 23 of the 2023 Law on Real Estate Business, real estate project investors can only collect deposits not exceeding 5% of the sale price when the project meets the conditions for business. This new regulation may reduce investors’ use of deposits for capital mobilization as previously done.
Second, according to Clause 5 of Article 13 of the 2014 Law on Real Estate Business and Clause 4 of Article 17 of the 2023 Law on Real Estate Business, the law stipulates that investors are not allowed to authorize other organizations or individuals to sign deposit contracts, purchase contracts, transfer contracts, or lease-purchase contracts for housing.
However, investors authorize affiliated parties or brokers to work with customers on reservations and product consultation agreements to avoid the content of “signing deposit contracts” or use the “exclusive” method to circumvent the “authorization” regulation for third parties. It can be seen that the law strictly regulates the form of “authorization” and the “signing of deposit contracts,” leading investors to use such forms to bypass this regulation.
Third is the form where investors use loan contracts as civil transactions under the Civil Code with customers, incorporating the purchase of future housing products. When the project meets the conditions to sign a sale contract, the investor will offset this loan amount into the future housing sale contract. Investors have used loan contracts as a disguised capital mobilization tool, causing difficulties for customers in recognizing the nature of the transaction.
- Practical situation of capital mobilization activities in the business of future housing in Hồ Chí Minh City
From the forms analyzed above, it can be seen that in case of disputes, the party suffering losses is often the buyers, customers (Huân & Giang, 2024). The reason is that when investors mobilize capital and make agreements with buyers, they consult legal advisers and lawyers to consider legal consequences and decide to circumvent capital mobilization regulations. In the worst-case scenario, where the investor has to refund the money (Judgment No. 1043/2023/DS-PT dated November 6th, 2023), the buyer cannot immediately receive the deposited amount and payment because the actual proceedings take at least 06 months to resolve a case, not including the execution of the judgment.
In disputes concerning the legality of agreements violating legal prohibitions, the transaction will be considered null and void, and the parties must return what they have received (Phương & Hiển, 2023). In this case, if the investor refunds, the buyer only receives the principal amount without interest from the payment date to the investor. The nullity of the transaction depends on the faults of the parties. In some court judgments related to invalid transactions, the court often concludes that the buyer has carefully considered the legal aspects of the project and agreed to purchase, thus, the fault lies with both parties (Judgment No. 551/2022/DS-PT dated September 8th, 2022). Therefore, the buyer’s requests for deposit penalties or compensation are not accepted.
According to the authors, the court should consider consumer protection laws (Article 24 of the 2023 Law on Consumer Protection) and consider the responsibility of the investor when intentionally violating the law. Since investors usually receive advice from legal experts, they cannot claim ignorance of the transaction’s violation of prohibitions and potential nullity.
A specific case involves the plaintiff and defendant signing Deposit Contract No. A1714/HĐĐC-TTLAND on August 29th, 2017. The purpose of the deposit was to ensure the signing of an apartment sale contract for the L Project at Nos. 4 and 4A N Street, Ward 8, District 4, Hồ Chí Minh City. However, this apartment is future real estate and does not meet the conditions to be put into business according to the Law on Real Estate Business.
Consequently, the appellate court decided that T Real Estate Joint Stock Company must return the deposit amount of 1,226,013,000 VND to Mr. Trương Văn T according to Deposit Contract No. A1714/HĐĐC-TTLAND on August 29th, 2017, without accepting the request for deposit penalties and compensation. The court upheld T Real Estate Joint Stock Company’s counterclaim by declaring Deposit Contract No. A1714/HĐĐC-TTLAND on August 29th, 2017, null and void due to violating legal prohibitions.
Similarly, in Judgment No. 551/2022/DS-PT of the People’s Court of Hồ Chí Minh City, a case in late 2018 involved Mr. Đinh Nguyễn Cao N being informed about the HHT apartment project at No. 201 HHT, Ward S, District BT, Hồ Chí Minh City, by TP Real Estate Investment Joint Stock Company through a broker. On December 3rd, 2018, Mr. N signed a non-refundable reservation slip with VT Company for an amount of 50 million VND.
On December 10th, 2018, Mr. N signed a deposit contract with PL Company for an amount of 160,529,935 VND to ensure the signing of an apartment sale contract for the PT Project. On December 25th, 2018, Mr. N and TP Company signed Deposit Contract No. 16/2018/HĐĐC.PT for an amount of 312,459,774 VND to ensure the signing of an apartment sale contract for the PT Project.
Mr. Đinh Nguyễn Cao N filed a lawsuit requiring TP Company to return the deposit and compensate for not fulfilling the apartment sale contract. The trial court partially accepted the plaintiff’s request, declaring the deposit contract null and void due to violating legal prohibitions and ordered TP Company to return the deposit. The appellate court affirmed that the deposit contract was null and void due to violating legal prohibitions and did not accept the plaintiff’s appeal (Judgment No. 551/2022/DS-PT on September 8th, 2022).
In many cases, despite not meeting the conditions to sign a sale contract, investors may still proceed to sign the sale contract to continue collecting payments under the sale contract. Specifically, in May 2023, the People’s Committee of Hồ Chí Minh City decided to fine two real estate companies, Gamuda Land and Khải Thịnh, for selling future housing without a permit and constructing buildings not in accordance with the plan (Gia Miêu, 2023). According to Government Decree 16, the fine can be up to 1 billion VND. However, this amount is insignificant for real estate businesses and does not serve as an effective deterrent. This leads to situations where businesses knowingly violate regulations despite being aware of the consequences.
III. RECOMMENDATIONS
First, it is recommended to add the act of illegal capital mobilization to Article 8 of the 2023 Law on Real Estate Business and increase the penalties for this act. Specifically, the current regulation on illegal capital mobilization imposes a fine ranging from 800,000,000 VND to 1,000,000,000 VND (Clause 4 of Article 58 of Decree No. 16/2022/NĐ-CP), which is not a sufficient deterrent. The authors suggest increasing the fine for illegal capital mobilization by imposing an amount equivalent to the illegally mobilized capital.
Furthermore, when handling administrative violations of investors who do not comply with legal regulations on capital mobilization and real estate business, the authorities can apply administrative mechanisms and measures to increase deterrence, such as limiting access to capital to ensure safety for credit institutions, and carefully reviewing procedures for subsequent projects of investors who do not comply with the law to avoid risks for the State and investors, and prevent negative societal consequences. In cases where illegal capital mobilization leads to accusations and indications of legal violations affecting citizens’ property rights, criminal sanctions can also be considered.
Second, it is recommended to enhance inspection, examination, and supervision of investors’ capital mobilization activities, combined with raising legal awareness among the public. First, a comprehensive check of all stages in the capital mobilization process should be carried out, from project planning, licensing, advertising, and marketing to contract signing and payment collection. Modern inspection measures, such as using information technology to monitor cash flows and early detection of violations, should be applied. Next, raising public legal awareness through increased dissemination and popularization of housing and real estate business laws, and capital mobilization on mass media and at seminars and training sessions.
Additionally, providing free or low-cost legal consultation services for the public on issues related to the sale and lease-purchase of future housing. Encouraging citizens and consumer protection associations to participate in monitoring investors’ capital mobilization activities and promptly report any signs of violation to the authorities. Warning signs should be placed at project areas that do not meet capital mobilization conditions and publicly list projects that meet and do not meet capital mobilization conditions in Hồ Chí Minh City to ensure that the public is well-informed.
IV. CONCLUSION
An apartment in major cities is always a dream and a valuable asset accumulated over many years by citizens. The participation of investors in the construction of future housing projects helps address the housing needs of the people. However, there needs to be a legal mechanism to protect the parties involved in the real estate market and provide a basis for them to resolve their disputes reasonably, openly, and transparently. Especially in the relationship with investors, consumers (buyers) are often at a disadvantage in terms of legal knowledge and financial capacity.
Therefore, the issuance of stringent regulations on capital mobilization, effective state management agencies, and measures to raise consumer awareness and leverage the strength of the Consumer Protection Association are necessary to protect consumers from potential risks in transactions involving the purchase of future housing.
REFERENCES
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