PROTECTING THE RIGHTS OF REAL ESTATE BUYERS ACCORDING TO THE LAW ON CAPITAL MOBILIZATION BY INVESTORS IN FUTURE HOUSING BUSINESS: A CASE STUDY IN HỒ CHÍ MINH CITY
Trần Thị Thanh Bích
MSc, UEH University
Nguyễn Thị Thu Hiền
PhD, Faculty of Law, CELG, UEH University
ABSTRACT
Future housing is a type of commodity that carries significant risks in transactions. In practice, investors, taking advantage of people’s desire and mentality to own homes, have engaged in capital mobilization forms from buyers, some of which are illegal. Vietnamese law has provisions to protect the rights of buyers in such transactions; however, there are still certain shortcomings and limitations. In this article, the authors analyze and evaluate the regulations on capital mobilization by investors in the future housing business in relation to protecting the rights of buyers. Furthermore, the authors clarify the practical application in Hồ Chí Minh City and propose recommendations to better protect the rights of real estate buyers when purchasing future housing.
Keywords: Future housing, capital mobilization, real estate.
I. INTRODUCTION
Among the capital mobilization methods of investors in the future housing business, mobilizing capital from buyers is a popular and extensively applied method. From the perspective of investors, this method is considered very effective as housing development capital improves rapidly without undergoing numerous processes, procedures, and expenses like other capital mobilization methods such as issuing shares or bonds and borrowing from credit institutions. From the perspective of buyers, when investing in owning future housing, besides enjoying certain economic benefits, the house purchase transactions also contain significant risks.
Recently, across the country in general and in Hồ Chí Minh City (HCMC) in particular, the situation of investors mobilizing capital inappropriately has increased significantly. This not only negatively impacts the real estate market but also affects buyers’ rights. Although the 2023 Law on Real Estate Business and the 2023 Law on Housing have various regulations aimed at controlling investors’ capital mobilization to protect buyers’ rights, in reality, there are still numerous projects that, despite not meeting business conditions, investors intentionally “bypass the law” to mobilize capital unlawfully.
How did investors use methods to mobilize capital, and how did they utilize it? Within the scope of this article, the authors focus on analyzing the 2023 Law on Real Estate Business and the 2023 Law on Housing regulations to clarify this issue. Based on that, the authors propose recommendations to improve the legal framework to protect future housing buyers’ rights.
II. REGULATIONS ON CAPITAL MOBILIZATION BY INVESTORS IN FUTURE HOUSING BUSINESS AND PROTECTION OF BUYER RIGHTS
Future housing is a type of commodity that carries significant risks in transactions. At the time investors introduce the housing into the market, it is still under construction, or it has been completed but does not yet meet the standards and conditions for use, thus it is not permitted for business (Clause 24, Article 2, the 2023 Law on Housing and Clause 5, Article 3, the 2023 Law on Real Estate Business).
With advantages such as preferential selling prices, preferential loan interest rates, and payment according to construction progress, the future housing market has been positively received by buyers in recent decades. To meet market demand, shape transparency for businesses, and create a safe legal corridor for buyers, the State has paid special attention to regulations protecting the rights of future housing buyers since the 2014 Law on Real Estate Business. According to Nhi (2024), the 2023 Law on Real Estate Business has been positively evaluated by many experts for the level of buyer protection, as it codifies stricter conditions for introducing future housing into business and tightens the conditions for capital mobilization by investors.
- Conditions for future housing to be introduced into business
Compared to the 2014 Law on Real Estate Business (Article 55), the 2023 Law on Real Estate Business (Article 24) provides better protection for buyers by detailing the types of documents that prove a project is eligible for business. Additionally, the 2023 Law on Real Estate Business imposes mandatory requirements on investors to disclose real estate information and fulfill land financial obligations (Clause 6, Article 24, and Clause 2, Article 19). Only when these conditions are fully met are investors allowed to mobilize capital directly from buyers (Point d, Clause 1, Article 115, the 2023 Law on Housing).
- Conditions for capital mobilization by investors
To protect the rights of buyers and limit investors’ unlawful capital mobilization, the 2023 Law on Real Estate Business has set forth the following conditions for investors when mobilizing capital in future housing:
Firstly, investors are only allowed to collect a deposit not exceeding 5% of the selling price or lease-purchase price from buyers when the housing meets all conditions for business as stipulated in Article 24 of the 2023 Law on Real Estate Business mentioned above. Additionally, Clause 5, Article 23 of this Law requires that the deposit agreement must detail the selling price and the lease-purchase price of the housing.
Basically, deposit assets have high liquidity and can become the immediate property of the deposit holder without any formalities (Đại, 2021). Due to its effectiveness and flexibility, the deposit method is often extensively applied by investors. Previously, the 2014 Law on Real Estate Business did not specify the percentage of the deposit that investors were allowed to collect from buyers, and only regulated the payment rates in the purchase contract (Clause 1, Article 57).
It can be said that this was a significant legal loophole, which many investors exploited by signing deposit agreements with a deposit rate that could reach or equal the value of the payments stipulated in the purchase contract, even when the future housing did not meet business conditions. In practice, it is very difficult to prove whether the purpose of the deposit was to ensure contract performance or to mobilize capital for the investor.
Moreover, requiring the deposit agreement to fully specify the selling price and lease-purchase price according to Clause 5, Article 23 of the 2023 Law on Real Estate Business will help limit the situation where investors obscurely disclose the selling price at the time of signing the deposit agreement and intentionally increase the price when signing the purchase contract. In this case, if the buyer refuses to purchase, the deposit will belong to the investor (Clause 2, Article 328 of the 2015 Civil Code) because the buyer has unilaterally refused to perform the purchase contract.
Secondly, regarding payments in future housing purchases. Building on the regulations from the 2014 Law on Real Estate Business, the 2023 Law on Real Estate Business maintains the payment ratio in the purchase contract: the initial payment must not exceed 30% of the contract value, including the deposit.
Subsequent payments must correspond to the construction progress, but the total must not exceed 70% of the contract value before the housing is handed over to the buyer and must not exceed 50% of the contract value if the seller is a foreign-invested economic organization (Clause 1, Article 25 of the 2023 Law on Real Estate Business). Without a certificate of land use rights and ownership of assets attached to the land, the investor cannot collect more than 95% of the contract value (Clause 3, Article 25 of the 2023 Law on Real Estate Business).
In theory, payments in the purchase or lease-purchase of future housing must be made in installments, in line with the project’s construction progress. To request a payment, the investor must provide buyers with acceptance reports corresponding to the progress milestones committed in the purchase contract. This regulation aims to control the use of advance payments by the investor, limiting cases where the investor uses the money for improper purposes or mobilizes capital beyond limits. Additionally, through this method, buyers can verify the transparency and seriousness of the investor in implementing the project, reducing the risk of “lost money” when investing in this type of housing.
Overall, the protection of buyers’ rights under the 2023 Law on Real Estate Business is enhanced compared to the 2014 Law on Real Estate Business. The 2023 Law on Real Estate Business has somewhat addressed the issues related to investors’ capital mobilization activities when the future housing project does not meet business conditions (Bách, 2024).
III. ISSUES ARISING FROM THE PRACTICAL APPLICATION OF REGULATIONS ON CAPITAL MOBILIZATION BY INVESTORS IN FUTURE HOUSING BUSINESS IN HCMC
In reality, in HCMC in recent times, there have been many projects where at the time of capital mobilization, the projects were still “on paper” but investors had already started collecting money from buyers (Tuấn, 2019) (Ngọc, 2023). Accordingly, investors have designed various transactions and created different types of documents to “bypass the law” and mobilize capital from buyers when the future housing does not meet business conditions. Common types of documents include:
Firstly, signing a reservation confirmation document. In this way, the investor collects an amount of money from the buyer called a reservation fee. This amount can range from tens of millions to hundreds of millions of đồng depending on the housing segment, project scale, reputation, and brand of the investor.
According to a common formula, these documents do not specify the exact opening sale date of the real estate; they do not record the selling price; and do not allow the buyer to unilaterally reclaim the reservation fee unless the reservation transaction fails due to the number of registered buyers exceeding the number of products the investor sells.
This agreement imposes no legal liability on the investor and does not guarantee that the buyer will own the real estate of the investor. This leads to the buyer’s capital being potentially appropriated for an extended period, as no official contract has been signed, making it difficult for buyers to protect their legal rights and interests (Nam & Hoàng, 2023).
Secondly, signing a promise-to-buy and promise-to-sell agreement. In this way, the investor collects from the buyer an amount that is usually larger than the reservation fee. At the same time, the investor provides the buyer with some evidence that the project has been and is being implemented, such as the project start time, the expected completion time, and the handover time for use. Signing this agreement serves as a commitment from the investor that the buyer will officially own the real estate of the investor.
Thirdly, signing a capital loan agreement. With this method, the buyer and the investor sign a loan agreement. Accordingly, the buyer will be the lender, and the investor will be the borrower, with the loan amount possibly being less than or equal to the value of the purchase contract, depending on the needs, reputation, and brand of the investor.
At the time of signing the loan agreement, the investor commits to paying an interest rate determined by the investor, with the loan period usually lasting until the future housing meets the conditions for business as stipulated by law. However, the regulations on the investor’s obligation to repay the loan and interest do not hold much practical significance, as the entire loan amount will be offset/converted into the purchase contract.
Additionally, the loan interest rate will be adjusted to 0%, or in other words, the buyer will not receive any interest as initially agreed. The loan agreement will automatically terminate when the investor and the buyer sign the purchase contract and the documents for offsetting the loan amount (Phượng, 2018).
Fourthly, signing a discount agreement or offering incentives. In this method, the investor stimulates the buyer’s psychology by providing economic benefits such as discounts on the selling price when the buyer makes an early payment, preferential loan interest rates at banks, management fee incentives, furniture packages, etc. (Minh, 2023).
The capital mobilization methods of investors that “bypass the law” are not unfamiliar in the market, having existed for many years, and there have been numerous warnings in the media about this issue. However, for buyers, two critical issues need to be considered:
(i) When engaging in future housing transactions and signing “masked” agreements, do buyers recognize these as capital mobilization tactics by investors?
(ii) When signing these “masked” agreements, are buyers fully aware of the potential risks they may encounter?
The recent situation in Hồ Chí Minh City, as well as in many other localities, arises from various reasons. Firstly, due to limited legal knowledge, some buyers still mistakenly believe that signing “masked” agreements is protected by law. Additionally, driven by the mentality of wanting to “buy houses at a bargain price,” buyers may be tempted by a very small percentage offered by investors, which, in the context of real estate, can amount to hundreds of millions of đồng after discounts or incentives. This has prompted buyers to agree to sign “masked” agreements without foreseeing the imminent risks.
Recently, the approval of investment policies and allowing capital mobilization for future housing projects in Hồ Chí Minh City has been more strictly managed. According to Hiển and Nhi (2024), in HCMC, “in 2022, two new housing projects were approved for investment policies, in 2023, two housing projects were approved for investment policies, and in the first quarter of 2024, only one housing project was approved for investment policies.”
According to the HCMC Department of Construction, in 2023, the city had 16 future housing projects confirmed to be eligible for capital mobilization (a decrease of nine projects compared to 2022) (Lê, 2024). In the first six months of 2024, all four new real estate projects submitted were not yet eligible for sale or lease-purchase of future housing (Mai, 2024).
The changes in the 2023 Law on Real Estate Business and the 2023 Law on Housing are expected to bring positive improvements in protecting buyers’ rights in future housing transactions. However, from regulation to practical application, there may still be a considerable gap if there is no effective control mechanism.
IV. SOME RECOMMENDATIONS TO IMPROVE THE LEGAL FRAMEWORK FOR PROTECTING THE RIGHTS OF FUTURE HOUSING BUYERS
Given the widespread occurrence of capital mobilization as mentioned, from the practical experience in Hồ Chí Minh City, to enhance the protection of buyers’ rights in future housing transactions, the authors propose the following recommendations:
- From the perspective of State management agencies
Currently, the fines for investors who mobilize capital improperly range from 800,000,000 to 1,000,000,000 đồng (Clause 4, Article 58 of Decree 16/2022/NĐ-CP). According to the authors’ viewpoint, these fines are not enough to deter investors.
Clearly, the benefits investors gain from capital mobilization are much greater than these fines. In the near future, the State should consider revising and supplementing the fines applicable to improper capital mobilization, collecting money not in accordance with project progress, or collecting amounts exceeding the percentage value of the purchase contract.
Instead of specifying a fixed fine amount, it may be more effective to set fines as a certain percentage, applying a formula that multiplies the percentage by the amount of capital mobilized/improperly collected by the investor. This would provide a realistic reflection, applying appropriately to the entity and action involved. In principle, the fine must be proportionate to the benefits investors receive, to effectively prevent violations.
In the mechanism for controlling investors’ cash flow in real estate business, the regulation requiring all payment transactions to go through banks is an important measure, aiming to limit improper capital mobilization by investors or misuse of mobilized funds. However, information about investors’ transaction account balances is confidential, and banks cannot disclose it without the investors’ consent or without a request from competent authorities.
To effectively implement this control mechanism, the State needs to strengthen inspection, examination, and regular monitoring activities. In addition to checking construction progress, quality, and safety, it is necessary to expand the scope of inspections to include the use of capital by investors through banking channels. This will improve the effectiveness of legal application in protecting buyers’ rights and preventing future risks.
- From the perspective of buyers
Before each payment phase, buyers should fully exercise their right to request the investor to provide information about the construction progress, the use of advance payments, and conduct on-site inspections of the project. If the investor does not provide information or provides unclear information, buyers have the right to refuse payment until the investor fulfills all obligations. If the investor continues to delay, buyers should actively file complaints and reports to competent authorities for timely handling.
Usually, violations regarding capital mobilization by investors are difficult for authorities to detect unless reported by buyers. However, in reality, there is a paradox; buyers will not report investors until a dispute arises between them. Additionally, buyers are often attracted to the incentives or discounts offered by investors. Understanding this mentality, investors have introduced many attractive sales policies to entice buyers. This inadvertently makes the situation of unlawful capital mobilization by investors more prevalent, causing difficulties for state management. Therefore, apart from the State increasing administrative penalties to deter investors, buyers should also raise awareness to protect themselves and not indirectly support investors’ violations for short-term benefits.
V. CONCLUSION
Addressing the shortcomings and limitations related to the regulations on capital mobilization by investors in the future housing business, which affect buyers’ rights and cause negative consequences for the real estate market, the 2023 Law on Real Estate Business and the 2023 Law on Housing have supplemented many relatively clear regulations aimed at better protecting buyers’ rights.
In the future, to build a transparent, safe, and sustainable real estate market, apart from strengthening state management in detecting and handling investors’ violations (Cường, 2024), the State should also focus on raising buyers’ awareness through propaganda and dissemination. Once corporate social responsibility and consumer awareness are enhanced, it will bring significant value to the real estate market and society as a whole.
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