PROTECTING THE RIGHTS OF FUTURE HOUSING BUYERS – FROM REGULATIONS TO PRACTICE
PROTECTING THE RIGHTS OF FUTURE HOUSING BUYERS – FROM REGULATIONS TO PRACTICE
Võ Thị Hoài
MSc. Lecturer. Faculty of Law, Saigon University
ABSTRACT
The purchase of future housing is a transaction that carries many risks for the buyer. The 2023 Law on Real Estate Business has introduced many new points aimed at protecting buyers in these transactions. This paper analyzes the legal regulations on protecting the rights of future housing buyers, points out existing issues arising in practice, and proposes some recommendations for improving legal regulations on this issue.
Keywords: future housing; protecting the rights of real estate buyers
I. INTRODUCTION
According to Clause 5, Article 3 of the 2023 Law on Real Estate Business, future housing is understood as “housing or construction works that are in the process of being constructed or have not yet been accepted for use according to construction law.” Thus, the transaction of buying future housing is understood as an agreement between the seller and the buyer about establishing rights and obligations at the time the housing is under construction or has not yet been accepted for use.
The seller will hand over the house and the Land Use Rights Certificate, the ownership certificate of the house and other assets attached to the land to the buyer when the house is accepted and put into use. Conversely, the buyer will fulfill the obligation to pay the value of the house to the seller after receiving the house and the Land Use Rights Certificate, the ownership certificate of the house, and other assets attached to the land as prescribed by law.
Because it is in the process of investment and construction, when transacting future housing, there are significant risks for the buyer if issues arise from the investor. However, because this transaction brings many benefits to both parties, such as for the investor, it is a capital mobilization channel to complete the project without having to bear interest from customers. For buyers, they can pay gradually at a lower price compared to existing housing.
Additionally, they can participate from the construction process of the house, so they can choose a house structure that suits their taste. This form of buying a house also suits the economic conditions of many families. Therefore, these transactions are very popular and are a business line aimed at promoting a vibrant real estate market.
To protect the rights of buyers, the law on real estate business is continuously improved to minimize the risks arising from the transaction that people commonly refer to as “buying houses on paper.”
II. LEGAL REGULATIONS ON PROTECTING THE RIGHTS OF FUTURE HOUSING BUYERS
Although the nature of the sale and purchase relationship is “a willing buyer, a willing seller” and is an equal and consensual transaction, from many perspectives, the purchase of future housing carries many risks for the buyer. In other words, the buyer is at a disadvantage compared to the seller in this type of transaction.
Therefore, the law needs to have reasonable regulations to protect the rights of the buyer. The law on real estate business protects the rights of the buyer from several angles: ensuring that the investor meets the conditions to become a legal seller in this transaction, avoiding cases where individuals or organizations take advantage to defraud and appropriate customers’ capital; ensuring that the buyer’s payment methods and schedule correspond to the project’s formation time and level, to avoid cases where the seller appropriates the buyer’s capital; ensuring the ability to prevent risks if the investor fails to fulfill their obligations as committed to the seller through regulations on a third party implementing a guarantee measure. Specifically:
(i) Strict regulations on the conditions of the seller:
– Having the necessary documents: According to regulations, for future housing to be put into business, the housing must have commenced construction according to construction law; It must have one of the types of documents on land use rights specified in Clause 2, Article 24 of the 2023 Law on Real Estate Business, which includes documents on construction permits, commencement notices; documents on the acceptance of the completion of technical infrastructure construction.
– Publicizing information: Before putting real estate or real estate projects into business, real estate business enterprises must fully, honestly, and accurately publicize information. The project investor must send a written notice to the provincial real estate business management agency about the housing being eligible for sale or lease-purchase.
– Ensuring no third-party ownership: Accordingly, the project must ensure it is not in a state of dispute; It is not being distrained to ensure judgment enforcement; It is not in the case of prohibited transactions; It is not in the period of suspension, temporary suspension of transactions according to law.
– The project investor must have completed financial obligations regarding land and the real estate project must conform to land use planning and plans. These strict regulations aim to ensure the investor has the legal status of a seller, thereby protecting the rights of the buyer with assets being future housing.
(ii) Regulations on house payment:
To avoid cases where the investor lacks financial capability, leading to appropriation of customers’ capital or fraudulent project schemes, Clause 5, Article 23 of the 2023 Law on Real Estate Business has specified the maximum deposit amount for buyers. Accordingly, when placing a deposit to buy future housing, people are only required to deposit no more than 5% of the sale price or lease-purchase price of the future housing or construction works when they are eligible for business. In this context, the deposit contract must clearly state the sale price as a basis for calculating the deposit amount.
Additionally, the payment schedule has been redefined in a more favorable direction compared to the provisions of the 2014 Law on Real Estate Business. Clause 2, Article 25 of the 2023 Law on Real Estate Business stipulates:
– The buyer will make the first payment of no more than 30% of the contract, including the deposit. Subsequent payments must align with the construction progress but should not exceed 70% of the contract value before the house is handed over to the customer. For sellers who are foreign-invested organizations, the payment amount required must not exceed 50% of the contract value. If the buyer has not been granted the pink book, no more than 95% of the contract value can be collected; the remaining value will be paid when the buyer is granted the pink book.
These clear and additional regulations aim to reduce the financial pressure on buyers of future housing.
(iii) Regulations on credit institution guarantees:
Commercial housing project investors must have bank guarantees before selling future housing. According to Article 26, real estate project investors must obtain approval from a domestic commercial bank or a foreign bank branch legally operating in Vietnam to issue guarantees for the investor’s financial obligations to the buyer in case the investor fails to deliver the housing as committed in the purchase contract.
If the investor and the bank agree to issue the guarantee, they will sign a guarantee agreement, whereby the bank will fulfill the investor’s financial obligations if the investor does not deliver the house. Financial obligations include the money the buyer has paid, plus advances from the buyer and other amounts (if any) according to the purchase contract. The requirement for a bank guarantee helps mitigate risks for homebuyers by protecting their financial rights through a third party, thus avoiding project stagnation due to lack of capital, delays in completion, delayed handover times, or project sales.
(iv) Regulations on the basic content of the purchase contract:
To ensure the rights of buyers in transactions involving future housing, the 2023 Law on Real Estate Business requires parties to conduct transactions using a standard contract. Clause 2, Article 45 of the 2023 Law on Real Estate Business stipulates that
“Real estate project investors and real estate business enterprises must use the standard contract specified in Article 44 of this Law and publicize real estate business contracts according to the provisions at point d, Clause 2, Article 6 of this Law before applying them.” The requirement to establish contracts according to the standard form helps buyers know the necessary terms to be agreed upon to foresee the required information, avoiding cases where the seller provides vague information or inserts unfavorable terms for the buyer.
Overall, the law on real estate business aims to protect buyers from potential risks such as:
– Projects not yet approved for implementation but being sold by investors to appropriate capital.
– Investors committing fraud by creating “ghost projects,” collecting money, and then fleeing.
– Projects not meeting conditions for capital mobilization but being sold, starting to receive deposits and reservations.
– Projects delayed in handover, with the investor failing to deliver the house on time.
– Projects entangled in disputes with third parties that the buyer is unaware of.
– Houses completed not meeting the initial commitments regarding structure, materials, and functionality.
III. SOME OUTSTANDING ISSUES IN LEGAL REGULATIONS ON PROTECTING THE RIGHTS OF FUTURE HOUSING BUYERS AND SUGGESTED RECOMMENDATIONS
- Payment Issues
In practice, disputes regarding the purchase of future housing often arise from delays in house delivery by investors, leading buyers to file lawsuits demanding penalties and contract cancellation. For example, in Case No. 60/2023/DS-ST of the People’s Court of District 8, Hồ Chí Minh City, the dispute was between the buyer, Mr. Trần Quốc D, and the seller, Company V, related to the V luxury apartment project located on B Street, H Ward, P District, Hồ Chí Minh City.
After signing the contract, Mr. Trần Quốc D paid Company V an amount of 420,000,000 VND according to Receipt No: PT10 dated June 21st, 2012. By the agreed handover date, Company V had not completed the construction and did not have the apartment to hand over as committed, prompting Mr. D to file a lawsuit demanding contract cancellation, a refund of the money paid, and interest.
The court ruled that Company V, as the investor in the V luxury apartment project located on B Street, H Ward, P District, Hồ Chí Minh City, had not completed the foundation yet signed the contract to sell apartments to raise capital.
The contract signing procedure between Mr. Trần Quốc D and Company V was not conducted through a real estate exchange, violating regulations on capital mobilization in housing and urban area development projects, and industrial zone infrastructure; raising capital from advance home purchase money of those eligible to own houses in Vietnam, making the transaction invalid. Therefore, the court ruled that Company V must return the money received from the buyer plus more than 10 years of interest for contract violation.
In reality, cases where buyers delay payments due to lack of funds also occur, but in such cases, the investor has the upper hand. Since house handover and ownership transfer procedures have not been completed, the investor can immediately impose late payment penalties or cancel the contract if not fulfilled. On the other hand, if the investor delays house handover procedures and completion of ownership transfer, the buyer will face difficulties in reclaiming the money and demanding interest for delayed fulfillment of obligations.
Buyers are often forced to take spontaneous measures such as hanging banners, gathering in front of projects or investor offices to exert pressure. The final recourse is to file a lawsuit, but legal proceedings take a long time to resolve. When the court resolves the case, the principal and interest amounts do not match the increase in real estate value on the market, resulting in buyers still being at a disadvantage.
To address this issue and protect buyers from investors appropriating capital, it is recommended to intervene in the payment schedule in the standard contract. Although the law has provisions on payments in transactions involving future housing, in reality, it has not yet fully protected the rights of buyers.
According to the 2014 Law on Real Estate Business, Article 57 stipulates that payment “is made multiple times, the first payment not exceeding 30% of the contract value, subsequent payments must align with the construction progress of the real estate but the total must not exceed 70% of the contract value when the house or construction works have not been handed over to the customer.”
However, there is no specific regulation on the progress. Even in the standard contract stipulated in Decree No. 96/2024/NĐ-CP dated July 24th, 2024, detailing the implementation of certain provisions of the Law on Real Estate Business, the payment terms only reiterate the provisions in the Law. This can lead to investors arbitrarily defining the payment schedule in the contract.
For example, the payment progress clause is reflected in the dispute resolved in Judgment No. 959/2020/DS-PT dated September 29th, 2020, regarding the dispute over the future housing purchase contract of the People’s Court of Hồ Chí Minh City, as follows:
Saigon V Real Estate Joint Stock Company sold an apartment to Ms. Trần Thị Thanh H for 3,165,008,000 VND with the payment schedule as follows:
– Deposit on August 1st, 2011: 50,000,000 VND.
– First installment within 15 days from the deposit date and signing of the purchase contract: 425,751,200 VND.
– Second installment within 60 days from the first payment: 425,751,200 VND.
– Third installment within 60 days from the second payment: 425,751,200 VND.
– Fourth installment within 7 days from the handover of the apartment: 158,250,400 VND.
– Fifth installment within 4 years from the handover date: 1,582,504,000 VND, specifically:
+ First sub-installment: 30 days from the handover notification: 98,906,500 VND.
+ Sub-installments 2 to 16: every 3 months: 98,906,500 VND per installment.
Thus, this payment content is also understood as “according to progress” but does not clearly show the investor’s responsibility for what has been done when receiving the buyer’s payment. In other words, the obligations of the buyer and the obligations of the seller are not proportionally represented in the payment terms. The 2023 Law on Real Estate Business has added a provision that “the first payment does not exceed 30% of the contract value, including the deposit” (Article 25). This addition is very important for the buyer but still does not clearly show the law’s intervention in the payment progress, leading to the practical situation where investors can arbitrarily stipulate the payment schedule to appropriate customers’ capital.
Recommendation: The payment progress clause in the standard contract should be detailed as follows:
“The purchase of future housing by multiple payments must comply with the provisions of Article 25 of the 2023 Law on Real Estate Business (Payments in the purchase of future housing shall be made multiple times, with the first payment not exceeding 30% of the contract value, including the deposit. Subsequent payments shall be made in stages according to the construction progress agreed in Article 4.2 of this contract but the total shall not exceed 70% of the contract value before handing over the house to the buyer…”
The 2023 Law on Real Estate Business does not clearly address the issue related to the remaining 5% payment upon receiving the ownership certificate. According to Clause 3, Article 25 of the 2023 Law on Real Estate Business: “the seller or lessor must not collect more than 95% of the contract value; the remaining contract value shall be paid when the competent state agency has issued the certificate of land use rights, ownership of assets attached to the land to the buyer or lessee in accordance with the law on land.”
In practice, the payment of this remaining 5% can lead to disputes. For instance, if the buyer has not completed the payment of this 5% when the state agency issues the certificate of land use rights and house ownership, how should the rights and obligations of the parties be determined?
Recommendation: The suggestion by VACC is reasonable to clarify this issue: “The seller shall only collect 95% of the contract value from the buyer, and the remaining 5% shall be deposited into an escrow account at a designated bank. The investor shall only receive this 5% upon presenting proof of having submitted the complete dossier for issuing the red book to the buyer” (Minh Dũng, 2023). Such clear regulations will protect the rights of both parties in this transaction while not conflicting with the Land Law.
- Regarding Guarantee Regulations
Clause 3, Article 26 of the 2023 Law on Real Estate Business stipulates: “When signing a contract for the purchase or lease-purchase of future housing, the buyer or lessee has the option to choose whether or not to have a guarantee for the investor’s financial obligations to them. In the case that the buyer or lessee chooses not to have a guarantee for the investor’s financial obligations to them, the parties are not required to implement the provisions in Clauses 4, 5, 6, 7, and 8 of this Article for the buyer or lessee who has signed the contract.”
This can lead to the understanding that the investor may or may not have a guarantee for their obligations. If investors are not required to implement guarantee measures for their obligations, transactions involving future housing cannot minimize risks.
Recommendation: Specific provisions on guarantee obligations should be included in Articles 24 and 26 of the 2023 Law on Real Estate Business to avoid inconsistent interpretations among entities. The bank guarantee condition for housing project investors should be mandatory, and buyers or lessees should have the right to choose a project with or without a guarantee before signing the contract, not at the time of contract signing to choose whether or not to have a bank guarantee (Vũ Thị Hồng Yến, 2023).
Author Nguyễn Thị Hồng Nhung (2022) also suggests that “It is necessary to tighten the process of signing guarantee contracts between the buyer and the bank, and to establish a stringent penalty system for acts of delaying or failing to provide complete documents related to the purchase contract to the bank to complete the guarantee dossier for the buyer.” Many opinions agree that this is indeed the most effective solution to protect the rights of buyers in transactions considered “buying houses on paper,” which entail many risks.
- Basic Contract Content
According to Article 46 of the 2023 Law on Real Estate Business, the main content of real estate business contracts includes a penalty clause for contract violations but does not include a damage compensation clause. The question arises: if the parties do not have a damage compensation clause, can they request compensation for damages in case of disputes? If the real estate business contract applies the governing law as the Commercial Law, the presence or absence of a damage compensation clause is not important. According to Article 307 of the 2005 Commercial Law: “In cases where the parties have an agreement on penalties for violations, the aggrieved party has the right to apply both penalty sanctions and claim damages.”
However, if applying the provisions of civil law, it is not possible. According to Clause 3, Article 418 of the 2015 Civil Code: “In cases where the parties agree on penalties for violations but do not agree on both penalties and damage compensation, the violating party shall only bear the penalties.” Purchase contracts for housing must apply the provisions of the Civil Code as stipulated in point a, Clause 1, Article 16 of the 2023 Law on Real Estate Business:
“Parties signing contracts are responsible for preparing sufficient information and documents to establish transactions, sign contracts in accordance with this Law and the Civil Code.” Therefore, the damage compensation clause is a mandatory provision if the parties wish to apply this sanction alongside penalty sanctions. If this is not a main clause, it can affect the buyer’s rights, especially in cases where the investor appropriates capital for decades without fulfilling the obligation to deliver the house.
Recommendation: Include damage compensation as one of the main contents of contracts in Article 46 of the 2023 Law on Real Estate Business to protect the buyer’s rights. There are many instances where investors appropriate buyers’ capital for extended periods, causing significant losses to buyers, as penalty amounts do not compensate for the increase in real estate value and currency devaluation.
IV. CONCLUSION
Just by typing “recent real estate fraud projects in Hồ Chí Minh City” into a search engine, numerous fraudulent project information will appear, such as An Phu Holdings, Công ty 585, Phu Thanh Tower, Lộc Phúc, etc. This shows that the real estate market still provides fertile ground for individuals and organizations to exploit and defraud buyers of large sums of money, due to buyers’ lack of knowledge, inadequate government oversight, and the indulgence of authorities.
Therefore, it is essential to review and promptly establish reasonable regulations to complete the legal framework and prevent risks for buyers in the context of promoting economic development.
REFERENCES
- People’s Court of District 8, Hồ Chí MinhCity. (2023). Case No. 60/2023/DS-ST of the People’s Court of District 8, Hồ Chí MinhCity. Retrieved from https://congbobanan.toaan.gov.vn/3ta1271349t1cvn/
- People’s Court of Hồ Chí MinhCity. (2020). Case No. 959/2020/DS-PT dated September 29th, 2020, regarding the dispute over future apartment purchase contract of the People’s Court of Hồ Chí MinhCity. Retrieved from https://thuvienphapluat.vn/banan/ban-an/ban-an-ve-tranh-chap-hop-dong-mua-ban-can-ho-hinh-thanh-trong-tuong-lai-so-9592020dspt-267060
- Government. (2022). Decree No. 02/2022/ND-CP dated January 6th, 2022, detailing the implementation of certain provisions of the Law on Real Estate Business.
- National Assembly. (2023). Law No. 29/2023/QH15, the 2023 Law on Real Estate Business dated November 28th, 2023.
- Minh Dũng. (2023). Many shortcomings in the Draft Amended Law on Real Estate Business. Nhân dân. Retrieved from https://nhandan.vn/con-nhieu-bat-cap-trong-du-thao-luat-kinh-doanh-bat-dong-san-sua-doi-post752379.html.
- Nguyễn Thị Hồng Nhung. (2022). Some legal issues about the purchase of future housing, Vietnamese Lawyer Journal, 2022.
- Vũ Thị Hồng Yến. (2023). New points of the Law on Real Estate Business on civil transactions related to real estate, Proceedings of the Seminar on New Points of Law on Civil Transactions Related to Real Estate, Hồ Chí MinhCity University of Law.
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