THE 2023 LAW ON REAL ESTATE BUSINESS ON THE PURCHASE AND SALE OF FUTURE HOUSING (OFF-PLAN HOUSING)

THE 2023 LAW ON REAL ESTATE BUSINESS ON THE PURCHASE AND SALE OF FUTURE 2025(OFF-PLAN) HOUSING

REGULATIONS OF THE 2023 LAW ON REAL ESTATE BUSINESS ON THE PURCHASE AND SALE OF FUTURE HOUSING (OFF-PLAN HOUSING) AND SOME RECOMMENDATIONS

MSc. Pham Thi Hong My

Faculty of Law, Saigon University

Abstract: The article analyzes (i) Overview of the provisions of the 2023 Law on Real Estate Business on the purchase and sale of future housing; (ii) Some comments, discussions and recommendations to improve the effectiveness of the implementation of the provisions of the 2023 Law on Real Estate Business on the purchase and sale of future housing.

Keywords: Law on Real Estate Business; purchase and sale of the future housing

Introduction

The real estate sector is a product of the commodity economy and urban development. The purchase and sale of off-plan housing refers to the behavior of real estate development companies selling residential properties that are in the process of being built or have not yet been accepted for use to buyers before the construction project is completed.

As a main method to sell commercial housing, the pre-sale of commercial housing has been widely adopted by real estate developers. Practically speaking, this method not only plays a crucial role in mobilizing capital for real estate development companies, revitalizing operations, and mitigating risks, but also objectively plays a positive role in activating the real estate market, promoting the improvement of people’s housing conditions, and maintaining the value of assets.

However, since the pre-sale of commercial housing is based on residential units that will be constructed in the future, the pre-purchaser bears more risks compared to the sale of existing housing. In reality, the rights and interests of pre-purchasers are increasingly being violated, and disputes related to the pre-sale of commercial housing are on the rise.

Therefore, the 2023 Law on Real Estate Business, with its important revised regulations, has contributed to resolving practical inadequacies and limitations, stabilizing the real estate business market, and particularly protecting the rights of buyers—the weaker party in the pre-sale relationship of commercial housing.

Hence, researching the new provisions of the 2023 Law on Real Estate Business regarding the purchase and sale of off-plan housing, discussing and comparing it with the 2014 Law on Real Estate Business and the laws of some countries around the world to propose recommendations for enhancing the effectiveness of applying these regulations is very necessary.

I. Overview of the Provisions of the 2023 Law on Real Estate Business regarding the Purchase and Sale of Future Housing (Off-Plan Housing)

Compared to the 2014 Law on Real Estate Business, the 2023 version has numerous significant advantages. Specifically:

1. Supplementing the concept of housing and construction works in the future in a more detailed manner compared to the concept in the 2014 version.

According to the provisions of Clause 5, Article 3 of the 2023 Law on Real Estate Business, it is explained as follows: “Housing and construction works to be formed in the future are houses and construction works that are in the process of investment, construction, or have not yet been accepted for use according to the provisions of construction law.”

2. Supplementing the Regulations on the Responsibilities of Real Estate Investors

This is a completely new provision compared to the 2014 version. Accordingly, the investor is responsible for:

– Conducting investment, construction, business, management, and exploitation of real estate projects in accordance with the law;

– Fulfilling all obligations of the project investor, preparing, appraising, approving, and implementing the project according to the provisions of construction law and relevant laws;

– Ensuring financial resources to implement the project according to the approved schedule;

– Within 50 days from the date of handing over the housing to the buyer or from the time the buyer has paid the full amount according to the agreement, the investor must submit the dossier to the competent state agency for the issuance of a certificate of land use rights and ownership of assets attached to the land as prescribed by land law to the buyer, unless the buyer voluntarily conducts the certification procedures;

– Not authorizing other organizations or individuals to sign deposit contracts, sales contracts, transfer contracts, lease-purchase contracts for housing, construction works, or areas of floor space in construction works that have technical infrastructure within the real estate project;

– Complying with legal provisions in investment activities, construction, land use, and transactions involving the sale or lease-purchase of housing, construction works, or areas of floor space in construction works, ensuring that buyers or lease-purchasers are granted certificates of land use rights and ownership of assets attached to the land by competent state agencies as prescribed by land law for the housing, construction works, or areas of floor space they have purchased or lease-purchased from the investor;

– Constructing housing, construction works, and technical infrastructure works, and social infrastructure works in the project according to the approved detailed plan, design, construction permit, and content of the investment project approval decision by competent state agencies; complying with construction standards;

– Handing over housing in accordance with housing law;

– In cases where the investor hands over raw-built housing, which is not an apartment building, to the buyer or lease-purchaser, the investor must complete the entire exterior of the house;

– Using the money collected from buyers or lease-purchasers to invest in the construction of the project, housing, construction works, or areas of floor space in construction works that have been sold or lease-purchased in accordance with the purpose of use as agreed in the signed contract; complying with regulations on anti-money laundering;

– Publicly providing information on the progress of housing investment and construction, construction works, or areas of floor space in construction works to buyers or lease-purchasers according to the signed purchase or lease-purchase contracts, or to competent state agencies upon request;

– Providing complete and truthful dossiers and information about real estate that meets the conditions for business as prescribed by this Law to real estate trading floors when choosing to distribute products through real estate trading floors;

– Not authorizing other organizations or individuals to sign deposit contracts, sales contracts, lease-purchase contracts for housing, construction works, or areas of floor space in construction works to be formed in the future.

3. For the first time, the issue of deposits has been legislated, directly contributing to the protection of buyers’ rights.

Real estate project investors are only allowed to collect a deposit of no more than 5% of the sale price, lease-purchase price of housing, construction works, or floor area in construction works from the depositor to purchase or lease-purchase when the housing, construction works have met all the conditions for business as prescribed by this Law.

The deposit agreement must clearly state the sale price, lease-purchase price of housing, construction works, or floor area in construction works.

4. More Detailed Regulations on Types of Land Use Right Documents and Supplementing Conditions for Off-Plan Housing and Construction Works to Be Put into Business

According to Article 24 of the 2023 Law on Real Estate Business, the conditions for off-plan housing and construction works to be put into business are as follows:

– Housing and construction works must have commenced construction according to the provisions of construction law;

– Having one of the following types of land use right documents, specifically:

i) Decision on land allocation;

ii) Decision on land lease and lease contract for land use rights according to the provisions of land law;

iii) Decision permitting land use purpose conversion;

iv) Certificate of land use rights;

v) Certificate of house ownership and residential land use rights;

vi) Certificate of land use rights, house ownership, and other assets attached to the land… In addition to having a construction permit for housing, construction works, and the application for a construction permit for cases requiring a construction permit according to the provisions of construction law;

vii) Notification of commencement of housing, construction works, and the design dossier for housing, construction works for cases not requiring a construction permit according to the provisions of construction law;

viii) Documents on acceptance of the completion of technical infrastructure construction according to the provisions of construction law corresponding to the project progress; in case of apartment buildings, mixed-use buildings with housing, documents proving acceptance of foundation construction completion according to the provisions of construction law must be available;

– The project investor must have a written notification to the provincial real estate business management agency about the housing being eligible for sale or lease-purchase before selling or lease-purchasing off-plan housing;

– Housing and construction works must be within real estate projects approved by competent state agencies according to the law, and in the project approval content, there must be an investment purpose to build housing and construction works for sale or lease-purchase;

– Meeting the conditions specified at points b, c, d, and đ of Clause 1, point a and point c of Clause 2 of Article 14 of the 2023 Law on Real Estate Business;

– Having publicly disclosed information about the real estate, real estate project put into business according to Article 6 of the 2023 Law on Real Estate Business;

– The floor area in future construction works put into business must not only meet the conditions specified in Clauses 1, 2, 3, 4, 5, 6, and 7 of Article 24 of the 2023 Law on Real Estate Business but also ensure the conditions specified in Clause 3 of Article 14 of the 2023 Law on Real Estate Business.

5. More Detailed Regulations on Payment Levels in the Purchase and Sale of Off-Plan Housing and Construction Works

According to Article 25 of the 2023 Law on Real Estate Business, the regulations on payment in the purchase, sale, and lease-purchase of off-plan housing and construction works have been supplemented with a provision that the initial payment does not exceed 30% of the contract value, including the deposit, which reduces the payment ratio for off-plan housing purchases. Specifically, the regulation is as follows:

The payment in the purchase, sale, and lease-purchase of housing, construction works, and floor areas in construction works to be formed in the future is made in several installments, with the first installment not exceeding 30% of the contract value, including the deposit, and subsequent installments must match the construction progress but not exceed 70% of the contract value before handing over the housing, construction works, or floor area in construction works to the buyer; in case the seller is a foreign-invested economic organization specified in Clause 4, Article 10 of this Law, the total must not exceed 50% of the contract value.

6. Adding Regulations on Guarantees in the Purchase and Sale of Off-Plan Housing for the First Time and Allowing Buyers to Choose Whether or Not to Have Financial Guarantees from the Investor

The guarantee content includes:

(i) An agreement by a commercial bank to provide guarantees for the investor;

(ii) The right of the buyer or lease-purchaser to choose whether or not to have guarantees for the investor’s financial obligations towards them;

(iii) Issuance of guarantee letters and related issues such as duration and payment.

7. Adding New Regulations on Conditions for Transferring Real Estate Business Contracts

The transfer of contracts for the purchase and sale, lease-purchase of housing, and construction works must meet the following conditions:

a) The contract is in the category of not having submitted the dossier requesting the competent state agency to issue the certificate of land use rights and ownership of assets attached to the land according to the provisions of land law;

b) The contract for the purchase and sale, lease-purchase of housing, and construction works is not under dispute being notified, accepted, and resolved by competent authorities according to the law or has a dispute that has been resolved by competent authorities with a legally effective judgment, decision, or award;

c) The housing, construction works under the purchase and sale, lease-purchase contract are not subject to seizure, mortgage to secure the performance of obligations according to the provisions of law, unless agreed by the mortgagee;

d) Having a purchase and sale, lease-purchase contract established according to the provisions of the law on real estate business.

II. Some Comments and Discussions on the Provisions of the 2023 Law on Real Estate Business regarding the Purchase and Sale of Off-Plan Housing

With the outstanding provisions of the 2023 Law on Real Estate Business regarding the purchase and sale of off-plan housing, it can be seen that it is fundamentally comprehensive and specific, contributing to transparency and creating a legal corridor for future real estate business activities, thus controlling the activities of future real estate business.

These provisions have helped real estate business activities, especially transactions involving off-plan housing, gradually become more orderly and have helped the real estate market develop more stably, healthily, transparently, and openly, making significant contributions to the overall development of the economy.

We can refer to the statistical situation of commercial housing projects eligible for the purchase and sale of off-plan housing (Table 01 and 02), which account for a large proportion.

This is because the demand for the purchase and sale of off-plan housing meets the needs of both parties: investors seek a source of interest-free capital to complete the project, while buyers find an investment channel that yields profits and has a purchase price that suits their financial capabilities.

Therefore, the provisions of the Law on Real Estate Business are genuinely meaningful, creating a comprehensive legal corridor for transactions involving off-plan housing that aligns with the practical needs of society.

Table 1. The comparative data on commercial housing projects in 2023 versus 2022

(Source: Ministry of Construction)

Table 2. Specific data on commercial housing projects in 2023

(Source: Ministry of Construction)

1. Regarding Deposits

The new provision of the 2023 Law on Real Estate Business is significant in protecting the rights of the weaker party in the purchase and sale of off-plan housing. It specifies the deposit amount and the payment for off-plan housing, including the deposit, which was not addressed in the previous regulation. This provision includes the area of floor space in the construction for the buyer.

By clearly stipulating that real estate project investors “are only allowed” to collect deposits from customers when the conditions for selling off-plan housing are met, it will help reduce or end the illegal capital mobilization by investors who collect deposits from homebuyers when the housing does not meet the conditions for business through contracts labeled as deposits or reservation agreements (Vu Thi Hong Yen, 2024).

This new provision ensures contract compliance, helps limit excessive deposit collection, reduces risks, and maximally protects the buyer. In the past, there have been many cases where investors exploited the lack of clarity in the law to illegally mobilize capital by collecting very high deposits and then not fulfilling their agreements.

From August 1, 2024, the rights of future real estate buyers are significantly protected as the deposit amount is limited to no more than 5% of the sale price.

Referring to the laws on the sale of off-plan real estate in China, this issue is regulated in the 2020 Civil Code in three articles: Article 586, Article 587, and Article 588. These articles state that the parties may agree that one party must place a deposit for the other party to ensure the latter’s rights. A deposit contract is established when the deposit is actually delivered. The deposit amount is agreed upon by the parties but must not exceed 20% of the main contract value, and the excess portion does not affect the deposit.

In Japan, the existing practice allows for contract cancellation by the depositor with a value ranging from 5% to 20% of the goods’ value. This means that the 2023 Law on Real Estate Business in Vietnam is consistent with other countries when specifying a concrete deposit rate.

2. Regarding Documents for Off-Plan Housing

The 2023 Law on Real Estate Business has more detailed regulations on types of land use right documents and additional conditions for off-plan housing and construction works to be put into business, and it has supplemented details on guarantees to address limitations.

The Summary Report on the Implementation of the 2014 Law on Real Estate Business and the Orientation for Amending the Law on Real Estate Business by the Ministry of Construction has noted that Clause 1, Article 55 of the 2014 Law on Real Estate Business and Decree No. 76/2015/ND-CP did not specify: (i) what types of land use right documents are included; (ii) what types of documents and information are required for different types of projects.

This lack of specificity has caused difficulties for agencies, organizations, and individuals in applying the regulations, leading to inconsistent understanding and application of the regulations among different places, agencies, organizations, and individuals. 

3. Regarding Guarantees

On the other hand, the report also points out that the regulations on guarantees in the sale and lease-purchase of off-plan real estate still lack some details. Article 56 of the 2014 Law on Real Estate Business has several shortcomings, such as:

– It does not specify the responsibility of the investor to complete the procedures for credit institutions to issue guarantee certificates for buyers and lease-purchasers of contracts for the sale and lease-purchase of off-plan housing, which is not consistent with the law on guarantees;

– It does not stipulate the basic, mandatory contents that must be included in guarantee contracts;

– It does not clearly define the scope, conditions, contents, and guarantee fees to be agreed upon, whether it is an agreement between the project investor and the credit institution or between the project investor and the buyer or lease-purchaser of off-plan housing;

– It does not stipulate the responsibilities of real estate project investors in cases where they fail to provide guarantees, nor does it provide for the protection of the rights of off-plan real estate buyers in cases where the investor, as the seller, fails to provide guarantees as required.

4. Regarding the Transfer of Contracts for the Sale of Off-Plan Real Estate

The 2023 Law on Real Estate Business has for the first time established regulations regarding the transfer of contracts for the sale of off-plan real estate.

Specifically, the Summary Report on the Implementation of the 2014 Law on Real Estate Business and the Orientation for Amending the Law on Real Estate Business by the Ministry of Construction also noted that the 2014 Law on Real Estate Business lacked regulations on the transfer of contracts for the sale and lease-purchase of off-plan construction works.

Article 59 of the 2014 Law on Real Estate Business only stipulated the transfer of contracts for the sale and lease-purchase of off-plan housing, without addressing the transfer of contracts for the sale and lease-purchase of housing and construction works that are not off-plan. However, there is a societal need for the transfer of contracts for the sale and lease-purchase of housing and construction works that are not off-plan.

Due to the absence of regulations on the transfer of contracts for the sale and lease-purchase of housing and construction works that are not off-plan, the societal demand for transferring such types of contracts has been limited. Organizations and individuals have sought to circumvent the law through other forms of transfer that do not ensure legal rigor and safety, such as signing authorization contracts and other transaction agreements, which result in the state not collecting taxes, and the rights of organizations and individuals not being guaranteed, leading to difficult-to-resolve disputes.

Thus, the 2023 Law on Real Estate Business has effectively addressed the limitations and challenges faced during the implementation of the 2014 Law on Real Estate Business, protecting the rights of the weaker party and creating transparency in the real estate market.

5. Some Limitations of the 2023 Law on Real Estate Business

However, from the author’s perspective, the 2023 Law on Real Estate Business and its effective implementation in the coming time still have some limitations as follows:

– First, regarding deposits and payment levels in the purchase and sale of off-plan housing.

Although the 2023 Law on Real Estate Business has specified this, it does not provide additional regulations on deposit penalties. This means that in the absence of such regulations, according to the principle of law application, if the specialized law does not provide guidance, the general law, the 2015 Civil Code, is applied. However, this regulation is limited as it leads to different interpretations, resulting in practical cases where the penalty can be up to 10 times the deposit. Therefore, to ensure the rules on deposits and deposit penalties, it is necessary to have a guiding document from the Judges’ Council of the Supreme People’s Court on deposit penalties.

On the other hand, the regulations on deposits and payment levels in the purchase and sale of off-plan housing can lead to the interpretation that Clause 5, Article 23 and Article 25 stipulate that deposits are only to ensure the future housing sales contract. So, what happens if the deposit is to secure the performance of the off-plan housing sales contract? Or in cases where the investor collects a deposit exceeding 5%, how should this be sanctioned? This content has not been specifically regulated, meaning that the provisions on deposits in the sale of off-plan housing at Article 23 need specific guiding documents in the future.

– Second, the 2023 Law on Real Estate Business has just come into effect but lacks comprehensive guiding documents.

The 2023 Law on Real Estate Business has just taken effect, but certain provisions that are crucial for practical implementation still require guiding documents. For instance, the guarantee content under Article 26 necessitates specific guidance from the State Bank on guarantees in off-plan housing sales. Article 26, with the title “Guarantees in the sale and lease-purchase of off-plan housing,” seems to apply only to housing, without clear mention of off-plan construction works. Furthermore, Article 24 does not stipulate mandatory bank guarantees for housing project investors. Hence, there needs to be consistency between these two regulations.

It can be seen that the 2023 Law has balanced the interests of investors and buyers according to market principles, forming the basis for investors to issue construction guarantees, thereby ensuring the rights of buyers. Therefore, the government needs to guide the implementation of these regulations to ensure transparency, helping customers understand their rights and make informed decisions when buying and selling real estate (Tran Thi Thu Ha and Nguyen Tien Dung, 2024).

– Third, although Article 17 of the 2023 Law on Real Estate Business stipulates the responsibilities of investors, the penalties for investor violations remain low.

Decree 91/2019/ND-CP, dated November 19, 2019, on administrative sanctions in the field of land refers to actions such as not submitting dossiers, not providing, or providing incomplete documents for the procedures to issue certificates to buyers, lease-purchasers of housing, construction works, and land use rights transfer in real estate projects (Article 31).

The decree specifies fines for delays ranging from 50 days to 6 months; over 6 months to 9 months; over 9 months to 12 months; and over 12 months. However, with the lowest fines ranging from 10 million VND to 30 million VND in Clause 1, and up to 30 million VND to 50 million VND in Clause 2, these penalties lack deterrence and preventive nature. Real estate businesses might be willing to pay the fines to continue engaging in profit-driven activities.

– Fourth, the 2023 Law on Real Estate Business does not clearly specify the form of some types of contracts.

The 2023 Law on Real Estate Business regulates the transfer of real estate business contracts, including the transfer of contracts for the sale of off-plan housing. However, it does not clearly stipulate whether notarization or certification procedures are mandatory for these contracts to be effective. The procedures, sequence, and dossiers for transferring real estate business contracts are detailed by the government, but detailed guiding documents have yet to be issued.

III. Recommendations to Enhance the Effective Implementation of the 2023 Law on Real Estate Business Regarding the Purchase and Sale of Off-Plan Housing

To ensure the effective implementation of the 2023 Law on Real Estate Business regarding the purchase and sale of off-plan housing, the author suggests the following measures in the near future:

– First, there should be guiding documents on deposits.

Accordingly, more specific regulations on deposits are needed, including the responsibilities of investors in cases where they collect money exceeding the stipulated amount; clearer regulations on deposit penalties; and clearer provisions on deposits to not only ensure contract conclusion but also ensure contract performance.

There should be specific regulations on guarantee content in the purchase and sale of off-plan housing; Decree 91/2019/ND-CP, dated November 19, 2019, on administrative sanctions in the field of land, should be amended to increase administrative penalties to ensure prevention and appropriate handling of violations.

Clearer regulations are needed on requiring notarization/certification for documents transferring off-plan housing sale contracts, and specific guidance on transferring off-plan housing sale contracts should be provided.

– Second, strengthening inspection, supervision, and monitoring by competent authorities in real estate business activities; utilizing the national real estate data system.

– Third, promoting the dissemination and popularization of the 2023 Law on Real Estate Business to the public to ensure compliance and protect the rights of buyers.

IV. Conclusion

The 2023 Law on Real Estate Business regarding the purchase and sale of off-plan housing has indeed opened a new era for the real estate business, making it more transparent and fairly protecting the rights of the involved parties, thereby contributing to socio-economic development.

References:

1. 2023 Law on Real Estate Business.
2. Ministry of Construction (2022), Summary Report on the Implementation of the 2014 Law on Real Estate Business and Orientation for Amending the Law on Real Estate Business.
3. Tran Thi Thu Ha and Nguyen Tien Dung (2024), “Some Practical Issues in Implementing the 2023 Law on Real Estate Business,” Journal of Democracy and Law, issue 1, no. 404.
4. Vu Thi Hong Yen (2024), “New Points of the 2023 Law on Real Estate Business Regarding Civil Transactions Related to Real Estate,” Proceedings of the Faculty-level Scientific Conference: New Points of the Law on Civil Transactions Related to Real Estate, Ho Chi Minh City University of Law.

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