PERFECTING THE LEGAL FRAMEWORK FOR REAL ESTATE TRANSACTIONS TO PROTECT THE RIGHTS OF REAL ESTATE BUYERS IN THE CONTEXT OF HỒ CHÍ MINH CITY
PERFECTING THE LEGAL FRAMEWORK FOR REAL ESTATE TRANSACTIONS TO PROTECT THE RIGHTS OF REAL ESTATE BUYERS IN THE CONTEXT OF HỒ CHÍ MINH CITY
Lê Huỳnh Phương Chinh
MSc. Lecturer, Faculty of Law, Cần Thơ University. PhD student in Economic Law – University of Economics and Law – Vietnam National University, Hồ Chí Minh City
Ngô Thị Khánh Linh
Undergraduate in Economic Law, Faculty of Law, Cần Thơ University
ABSTRACT
In large cities like Hồ Chí Minh City, the real estate market often has a high volume of real estate transactions. In practice, real estate purchases involve many risks for buyers in transactions with real estate businesses and organizations. In this article, the authors will analyze and comment on the necessary legal issues to protect the buyer in real estate transactions, and analyze legal aspects and propose solutions to improve and protect the rights of real estate buyers in Hồ Chí Minh City in particular and the country in general.
Keywords: Real estate market, protection of buyer’s rights, Hồ Chí Minh City, Real estate business law.
I. THE NECESSITY TO PROTECT THE RIGHTS OF BUYERS IN REAL ESTATE TRANSACTIONS
In Hồ Chí Minh City in particular and the country in general, disputes over the purchase of real estate such as houses, apartments, etc. arise from issues such as the investor’s delay in handover, delays in obtaining house certificates, and buyers’ delayed payments, which mainly disadvantage the buyers. Therefore, prioritizing the protection of the buyer’s rights is essential when developing and perfecting policies and regulations related to real estate transactions.
Firstly, in real estate transaction disputes, buyers are often at a disadvantage due to contract breaches and damages.
Buyers are often limited in accessing information about the real estate and the financial status of real estate businesses, especially when the seller intentionally conceals or violates the provision and disclosure of real estate information. Buyers are also restricted in their ability to negotiate and agree on contract terms, as most real estate purchase contracts are standard forms drafted by investors or businesses, leaving buyers unable to proactively ensure their rights. Furthermore, legally, investors are more knowledgeable and understand the law better than real estate buyers, so they often hold an advantage in these transactions.
This is one reason why current laws are being improved to protect buyers in real estate transactions, reduce the potential for buyers to suffer certain losses while engaging in these transactions, and impose stricter conditions on businesses and investors to ensure they fulfill their obligations in these types of transactions.
In practice, the disadvantages and damages faced by buyers in real estate transactions can be assessed through the situation of dispute resolution in courts in Hồ Chí Minh City. For instance, in the Judgment 387/2017/DS-ST dated September 28th 2017 concerning the dispute over an apartment purchase contract between Mr. Q and Ms. T and KG Real Estate Investment and Development Joint Stock Company. Specifically, Mr. Lê Đăng Q and Ms. T sued KG Real Estate Investment and Development Joint Stock Company (hereinafter referred to as KG Company) to claim damages related to the apartment purchase contract.
On September 25th 2013, Mr. Lê Đăng Q (Mrs. T’s husband) signed Purchase Contract No: 0365/016T04_K1GV/HĐMB with KG Company. According to the contract, KG Company sold Mr. Q and Mrs. T apartment No. 16 on the 4th floor of the KG High-Rise Complex – Gò Vấp project, located on Quang Trung Street, Ward E, District G, Hồ Chí Minh City. The apartment’s area is 63.9 square meters, with an apartment price of 927,162,756 VND.
The handover deadline was projected for the first quarter of 2014, but not later than 3 months. If KG Company delayed the handover as agreed in the contract, KG Company was required to pay Mr. Q and Mrs. T interest on the total amount of payments made from the overdue date. The interest rate applied was the 12-month savings deposit rate of Vietcombank. At the time of the contract signing, the KG High-Rise Complex project had completed the foundation.
In execution of the contract, Mr. Q and Mrs. T paid for the apartment in accordance with the agreement. By December 4th 2015, Mr. Q and Mrs. T had paid KG Company 881,933,470 VND. However, KG Company did not hand over the apartment to Mr. Q and Mrs. T until December 10th 2015. Since the handover, KG Company has not completed the procedures for the state authorities to issue the apartment ownership certificate for Mr. Q and Mrs. T.
Regarding this case, the People’s Court of District 10, Hồ Chí Minh City accepted Mr. Q’s lawsuit request: (According to Judgment 387/2017/DS-ST dated September 28th 2017 of the People’s Court of District 10, Hồ Chí Minh City)
– KG Real Estate Investment and Development Joint Stock Company was required to pay Mr. Lê Đăng Q and Mrs. Nguyễn Thị Bách T the interest amount arising from the delay in the apartment handover, totaling 61,613,442 VND.
– The court dismissed Mr. Q and Mrs. T’s request for KG Real Estate Investment and Development Joint Stock Company to pay bank interest of 54,400,000 VND and interest for late performance of obligations amounting to 2,581,126 VND.
– KG Real Estate Investment and Development Joint Stock Company was required to complete the procedures for the state authorities to issue the apartment ownership certificate for Mr. Q.
In another judgment, also related to an apartment purchase contract dispute – Judgment 375/2017/DS-ST dated September 27th 2017. According to Contract No: 0086/014 T02 – K1GV/HĐMB dated September 12th 2012, Mr. Đặng Thế C signed a contract with KG Company to purchase apartment No. X, K1, KG Apartment, Ward Y, GV District, Hồ Chí Minh City, with the purpose of purchasing a house to live in.
The contract value after discount was 1,031,859,130 VND. According to Article 4 of the contract, KG Company committed to handover the house in the fourth quarter of 2013, but not later than 3 months. If the handover was delayed, KG Company would pay Mr. Đặng Thế C interest on the total amount of payments made from the overdue date, based on the 12-month savings deposit rate of Vietcombank.
Mr. Đặng Thế C paid the seller in two installments from February 2nd 2013 to February 26th 2013, as agreed in the contract, totaling 980,266,174 VND.
On December 3rd 2015, the seller handed over the house to the buyer, 20 months late. Mr. C had paid KG Company 980,266,174 VND. Therefore, Mr. Đặng Thế C requested KG Company to pay interest as agreed in the contract.
Consequently, the People’s Court of District 1, Hồ Chí Minh City accepted the plaintiff Mr. Đặng Thế C’s request. (According to Judgment 375/2017/DS-ST dated September 27th 2017 of the People’s Court of District 1, Hồ Chí Minh City)
– KG Real Estate Investment and Development Joint Stock Company was required to pay Mr. Đặng Thế C an amount of 114,364,386 VND.
– KG Company was required to complete the procedures to issue the apartment ownership certificate to Mr. Đặng Thế C for apartment No. 17, 11th floor, X Residential Cluster, K1, KG Apartment, Ward Y, GV District, Hồ Chí Minh City, within 30 days from the date the judgment takes legal effect.
– The Hồ Chí Minh City Department of Natural Resources and Environment, along with the City’s Construction Inspectorate, was advised to inspect KG Company’s compliance with construction permits, safety standards, and to halt issuing new construction permits until KG Company fulfills all obligations to customers of old projects before undertaking new projects.
These are among several judgments resolving disputes in Hồ Chí Minh City. It can be observed that buyers often face disadvantages in various aspects of real estate purchase transactions.
Secondly, real estate is a type of commodity with many risks.
Unlike other types of goods, real estate ownership is determined through numerous documents and procedures. Therefore, buyers need to thoroughly understand legal regulations and properly perform all procedures to transfer ownership of these assets, minimizing risks.
Partly, real estate is always a high-value commodity, but it is also prone to disputes if ownership is unclear. Particularly for future housing and constructions, legally, the transfer of ownership to the buyer has not been completed. In reality, these types of houses are usually not immediately usable or are still under construction, with buyers making payments in installments according to the project’s progress.
This type of real estate transaction is associated with the highest risks, especially when the investment project faces financial difficulties, making it challenging for buyers to recover their payments or obtain ownership of the house or construction as agreed in the contract.
Thirdly, the legal framework to protect buyers in real estate transactions still has certain shortcomings and inconsistencies.
For many years, measures to perfect the legal framework to enhance the protection of the weaker party in real estate transactions have been implemented. However, in practice, many cases related to real estate transactions have caused significant damage to many buyers, especially transactions not regulated by law, such as deposit contracts and reservation contracts. All the objects of these types of contracts require buyers to pay real estate businesses to secure the right to access real estate expected to be formed in the future.
The ambiguity in the contract’s subject has led to disputes, exemplified by the Alibaba case, with 4,500 victims (Hương, 2023). This has resulted in difficulties in controlling the funds provided by buyers to real estate investment businesses. Moreover, buyers have no basis to require the investor to fulfill their obligations, as the parties have not yet entered into an official contract according to the legal provisions on real estate business.
It can be seen that in disputes related to real estate transactions, not only in Hồ Chí Minh City but also nationwide, buyers often face significant disadvantages when purchasing real estate. Therefore, regulatory authorities need to research, enhance, and perfect the legal framework, ensuring that those in need feel secure in participating in real estate transactions. At the same time, perfecting the legal framework in this field also helps control investors/sellers, preventing them from exploiting legal loopholes to illegally appropriate money and infringe on the rights of real estate buyers.
II. EXISTING ISSUES AND RECOMMENDATIONS TO PERFECT THE LEGAL FRAMEWORK TO PROTECT THE RIGHTS OF BUYERS IN REAL ESTATE TRANSACTIONS
Given certain existing issues in real estate purchase contracts, several proposals and amendments have been issued to perfect and protect the rights of buyers in real estate transactions. The most recent being the 2023 Law on Real Estate Business. This is seen as a positive sign, expected to contribute to the healthy development of the real estate market in Hồ Chí Minh City in particular and the country in general. However, some issues still need to be considered and researched to have better legal application directions.
Firstly, regulations on the disclosure of information about real estate when entering the market.
Previously, Article 6 of the 2014 Law on Real Estate Business stipulated that real estate businesses were responsible for disclosing information about real estate. However, for their profit goals, many investors and project owners ignored this responsibility, leading to many real estate buyers trusting the misleading information provided by businesses and suffering damages. One reason investors did not fulfill their information disclosure obligations was that the penalties for violations were not strong enough to be deterrent.
According to Decree No. 16/2022/NĐ-CP, the act of not disclosing, insufficiently disclosing, or inaccurately disclosing information about real estate projects and housing construction projects could be fined from 100,000,000 VND to 120,000,000 VND. Meanwhile, the fine for conducting real estate business without ensuring the conditions specified could be up to 600,000,000 VND. Despite this, compared to the benefits gained from exploiting legal loopholes in large-scale real estate projects worth hundreds or thousands of billions of VND, these fines were too low. Many investors deliberately violated the law and accepted the fines, greatly affecting the rights of other entities (Phan Phương Nam, 2023).
In the 2023 Law on Real Estate Business, this content has been adjusted. Specifically, Article 6 stipulates that investors and businesses must disclose information before introducing real estate and real estate projects into the market. Thus, information disclosure is considered one of the prerequisite conditions for real estate to enter the market. Moreover, the amount of information required to be disclosed by the new regulation is more extensive than the old regulation. This is a positive sign, indicating enhanced protection of real estate buyers’ rights regarding the information provided by businesses.
However, for this regulation to be fully effective, regulatory authorities need to propose management solutions and penalties for violations to limit businesses from violating information disclosure regulations for their benefit. Additionally, from a management perspective, the law should have mechanisms to receive and handle reports and denunciations from the public and real estate buyers about businesses’ information disclosure violations, addressing them promptly to avoid greater consequences. This way, real estate buyers can be more assured when engaging in real estate transactions.
Secondly, regarding the notarization of contracts related to real estate transactions.
Both the 2014 and 2023 Law on Real Estate Business stipulate: “Real estate business contracts and real estate service business contracts, where at least one party is a real estate business enterprise, are notarized or certified at the request of the parties.”
According to many experts, individuals engaging in real estate transactions are usually not regular participants and lack extensive knowledge of legal regulations. Therefore, it is suggested that the law should allow a third party knowledgeable in law to certify transactions between individuals and real estate businesses. This binding helps limit future disputes and ensures the rights of the parties involved in transactions.
In reality, there have been many cases where investors, after selling real estate to buyers and receiving payment, did not fulfill their obligations related to legal procedures, leaving the buyers at significant risk. According to Assoc. Prof. Dr. Nguyễn Quang Tuyến, Head of the Economic Law Faculty, Hanoi Law University, “Thus, the risk falls on the buyer. In this case, to protect their rights, the buyer must file a complaint. One of the legal documents is a notarized purchase contract. According to legal regulations, notarization is evidence.”
Referring to European countries, real estate transactions are required to be conducted through a notary office. For future real estate projects, businesses must prove sufficient financial capacity according to legal regulations to implement and complete the project (Hương, 2023).
It is suggested that in the future, regulatory authorities should consider requiring real estate transaction contracts between individuals and businesses to be notarized and certified to help ensure the rights of real estate buyers are “certified” and better protected.
Thirdly, additional and specific regulations on real estate business conditions.
The 2023 Law on Real Estate Business stipulates more conditions for enterprises and investors when engaging in real estate business activities. Specifically, Article 9 of the Law requires real estate businesses to meet the following conditions:
Real estate businesses operating through real estate projects must have equity capital not less than 20% of the total investment capital for projects with a land use scale of less than 20 hectares, not less than 15% of the total investment capital for projects with a land use scale of 20 hectares or more, and must ensure the ability to mobilize funds to implement the investment project; if real estate businesses simultaneously carry out multiple projects, they must have sufficient equity to allocate to ensure the above-mentioned ratio for each project to implement all projects.
Thus, for an enterprise to engage in the real estate business, the new regulations require the enterprise to ensure financial capacity to implement investment and business projects. This minimizes the risk of investment projects not being completed on schedule due to lack of funds, especially for future housing projects. This minimizes the risks for real estate buyers to the lowest level.
Fourthly, additional conditions for each type of real estate entering the market.
Depending on the type of real estate, the new regulations require stricter conditions for investors and businesses to enter the market:
1. For trading in existing housing and construction works
The law stipulates that ownership is established from the time the buyer or lease purchaser has fully paid and received the handover of the housing or construction works and the construction floor area. Meanwhile, the 2014 Law on Real Estate Business only stipulated that ownership transfer occurs when the seller hands over the house or construction works to the buyer, or the buyer has fully paid the seller. Thus, the 2023 Law on Real Estate Business more clearly defines that ownership is only established when the buyer has accepted the handover of the housing. This limitation reduces future disputes and protects the rights of real estate buyers (“10 điểm mới của Luật Kinh doanh bất động sản 2023”, 2024).
2. For trading in future housing and construction works (“Ten new points of the 2023 Law on Real Estate Business“, 2024)
– More detailed and specific conditions for bringing future housing and construction works into business (Article 24 of the Law).
– Legalizing more detailed and specific conditions for bringing future housing and construction works into business (allowing real estate project investors to collect a deposit of no more than 5% of the sale or lease purchase price) (Article 23 of the Law).
– Reducing the payment rate when purchasing future housing, with the initial payment not exceeding 30% of the contract value, including the deposit. Subsequent payments must be in line with the construction progress, with a total not exceeding 70% of the contract value before handover and not exceeding 95% when the buyer or lease purchaser has not been issued a land use rights certificate or property ownership certificate (Article 25 of the Law).
– For lease purchase transactions, the advance payment to the lessor must not exceed 50% of the housing value (instead of 70% as currently).
– Allowing buyers to choose whether or not to have financial obligations guaranteed by the investor (Article 26 of the Law).
The new regulations impose multiple conditions that investors must meet before entering the real estate business. This is expected to limit investors from “bypassing the law” or committing fraudulent acts, thereby protecting the interests of real estate buyers.
The comparative analysis between previous and the latest legal regulations on real estate business, as well as references to actual cases in Hồ Chí Minh City, helps clarify regulations related to protecting real estate buyers’ rights. The authors propose some directions for perfecting regulations related to real estate transactions, such as conditions for real estate business entities, real estate purchase contracts, etc. Through this, the authors aim to contribute to enhancing the protection of real estate buyers in Hồ Chí Minh City in particular and in Vietnam in general.
III. CONCLUSION
As analyzed, real estate transactions always pose certain risks for buyers. Therefore, parties in real estate transactions, especially buyers, need to thoroughly research the market and understand the regulations to properly comply with them, protecting their own rights when participating in real estate transactions, particularly in future housing transactions, to avoid unnecessary prolonged disputes.
With the 2023 Law on Real Estate Business about to be implemented in practice, the positive new points mentioned above are expected to help address existing issues in real estate transactions and better protect buyers’ rights. However, for the regulations in the 2023 Law on Real Estate Business to be fully effective, guiding documents, legal explanations, and related documents need to be detailed. Additionally, management solutions and penalties for violations should be considered to limit businesses from violating information disclosure regulations for their benefit, which can lead to damages for buyers in real estate transactions.
REFERENCES
- Hương, T. (2023). Ensuring the rights of buyers in real estate transactions. Retrieved from https://vtv.vn/kinh-te/dam-bao-quyen-loi-nguoi-mua-khi-giao-dich-bat-dong-san-202309111025238.htm
- Ten new points of the 2023 Law on Real Estate Business (2024). Retrieved from https://tapchitaichinh.vn/10-diem-moi-cua-luat-kinh-doanh-bat-dong-san-2023.html
- Phan Phương Nam, & Ngô Gia Hoàng. (2023). Ensuring the rights of home buyers in mortgaged real estate projects. Retrieved from http://lapphap.vn/Pages/tintuc/tinchitiet.aspx?tintucid=211682
- People’s Court of District 10, Hồ Chí Minh City. Judgment No. 375/2017/DS-ST on the dispute of apartment purchase contracts, dated September 27th 2017. Retrieved from https://thuvienphapluat.vn/banan/ban-an/ban-an-3752017dsst-ngay-27092017-ve-tranh-chap-hop-dong-mua-can-ho-17988.
- People’s Court of District 10, Hồ Chí Minh City. Judgment No. 387/2017/DS-ST on the dispute of apartment purchase contracts, dated September 28th 2017. Retrieved from https://thuvienphapluat.vn/banan/ban-an/ban-an-3872017dsst-ngay-28092017-ve-tranh-chap-hop-dong-mua-ban-can-ho-15627.
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