PROTECTING THE RIGHTS OF REAL ESTATE BUYERS THROUGH REAL ESTATE EXCHANGES: PRACTICES IN HỒ CHÍ MINH CITY
PROTECTING THE RIGHTS OF REAL ESTATE BUYERS THROUGH REAL ESTATE EXCHANGES: PRACTICES IN HỒ CHÍ MINH CITY
Nguyễn Thị Phương Thảo
MSC, Lecturer, Faculty of Economic Law, University of Economics and Law (VNU-HCM)
Triệu Quốc Huy
Student, Faculty of Law, University of Economics and Law (VNU-HCM)
Bùi Nguyễn Minh Lợi
Student, Faculty of Law, University of Economics and Law (VNU-HCM)
ABSTRACT
According to the 2022 Vietnam Real Estate Consumer Sentiment Index Report, about 92% of Vietnamese people want to own more real estate, the highest rate in Southeast Asia (Linh & Hoa & Huyền, 2024).
Possibly for this reason, real estate business in Vietnam has always attracted investors, the public, and policy makers. Therefore, developing supplementary services to support real estate business activities is also an urgent issue. Real estate exchanges are considered a type of intermediary service that connects buyers and sellers of real estate products.
However, this service is regarded as a very new tool to support real estate business activities, leading to legal regulations not fully encompassing all arising legal issues. The lack of clarity and transparency results in the rights of parties in transactions on the exchange not being comprehensively protected, especially buyers, as they are not directly obtaining real estate information. Within the scope of this paper, the authors aim to analyze the current legal provisions on real estate exchange service business, as well as analyze the operational practices in Hồ Chí Minh City, thereby proposing suitable solutions to protect buyers’ rights in transactions.
Keywords: real estate exchange, real estate, real estate business.
I. INTRODUCTION
The directive from Section 2.4, Part I of Resolution 18-NQ/TW mandates that all real estate transactions must go through real estate exchanges. However, this is a general policy. Regarding application and implementation, the 2023 version of the law has made several changes for real estate exchanges, encouraging transactions through exchanges while tightening the supervision of future exchange activities.
The common goal is to ensure the ability to control and stabilize the market by state agencies and to balance the interests of the parties involved, especially buyers of real estate through exchanges. Nevertheless, there are still many issues concerning the management mechanisms and inspection of exchange activities, the responsibilities of exchanges in the intermediary and brokerage process of real estate, and the increasing complexity of illegal activities related to exchanges.
Under the current policy, real estate exchanges are expected to become more popular and potentially a useful tool for managing, supervising, and stabilizing the real estate market by the state. To achieve this goal, especially in Hồ Chí Minh City, where the real estate market is particularly vibrant, exchanges need to be regulated under a stringent system that aligns with the true nature of an exchange, performing intermediary real estate brokerage activities, and ensuring compatibility with the development of the real estate market in the city.
II. OVERVIEW OF REAL ESTATE EXCHANGES
- Concept of Real Estate Exchange
The term “real estate exchange” has appeared in international research works with different approaches, stemming from the fact that not all countries have the model of real estate exchanges.
For example, according to the Indian Institute of Finance, they consider real estate exchanges as an environment providing groups of information related to real estate such as price fluctuations, ownership registration information, or other specialized information in the technical and legal fields.
These groups of information are believed to affect the national economy, and this model was established in India with the aim of preventing the “asset bubble”, that is, limiting real estate prices from being pushed up excessively to protect the domestic economy. This model does not serve the trading or business purposes of individuals or organizations (Agarwal, 2017). After all, real estate is a special type of asset that cannot be produced but can only develop well within the available “resources” of a territory.
However, in the United States, “real estate exchange” is not considered a concept in national law. Most activities related to real estate transactions involve intermediaries, and these intermediaries are usually brokers (“Topic: American Real Estate Brokerage”, 2020).
In Vietnam, according to Clause 10, Article 3 of the 2023 Law on Real Estate Business (LREB), real estate exchanges are places where transactions of buying, transferring, leasing, subleasing, and leasing-buying real estate occur, established and operating in accordance with regulations. This regulation differs from the concept provided in Clause 6, Article 3 of the 2014 LREB, specifically stating that real estate exchanges are places where transactions of buying, transferring, leasing, subleasing, and leasing-buying real estate take place. This change aims to clearly distinguish that the objects of transactions on the exchange must be established and operate clearly under the guidance of legal regulations, not just any real estate meeting the conditions.
Based on this concept, it can be understood that real estate exchanges do not directly participate in buying and selling relationships as a buyer or seller, but merely play the role of a “marketplace” where sellers and buyers negotiate to engage in real estate transactions with transparency and mutual respect, regulated by legal provisions.
In summary, from the perspective of legal research in various countries around the world or Vietnamese law, real estate exchanges are understood as a legal space where sellers, transferors, lessors, sublessors, and lease-purchasers are allowed to conduct transactions with buyers, transferees, lessees, sublessees, and lease-purchasers of legal real estate according to legal regulations.
Factors such as prices, costs, geographical location, and other information about real estate will be displayed transparently and honestly on the exchange. The rights and obligations of the parties follow the principle of free agreement without violating the law or going against social ethics.
- Legal Basis of Real Estate Exchanges
To continue improving regulations in the field of real estate business, the 2023 Law on Real Estate Business (LREB) was recently passed with many amended and supplemented provisions, especially those related to real estate exchanges.
During the drafting process, there was a view that real estate business transactions must go through real estate exchanges, similar to the provisions in the 2006 LREB, but this was abolished in the 2014 LREB. After discussions, specifically stated in Clause 7, Article 7 of the 2023 law, the National Assembly agreed to stop at encouraging real estate transactions through exchanges to protect business freedom and limit brokers or exchanges from taking advantage of mandatory regulations to negatively affect the market.
Adapting to the new regulations, real estate exchanges and their activities are managed more strictly. Regarding the conditions for establishing exchanges, the new law is clearer for two subjects: exchange managers and operators, and it inherits the old regulations on basic conditions such as managers having a real estate brokerage certificate, the right to manage enterprises, or exchanges having to register operating regulations, fixed locations, and ensure adequate facilities and technical conditions. The new law requires exchanges to promulgate and publicize the real estate transaction process through exchanges.
Clause 10, Article 83 of the 2023 LREB, stipulates a 6-month period from the effective date of the 2023 version for exchanges that do not meet the conditions prescribed in the new law to fully supplement and complete legal requirements. After this period, inspection activities will be tightened to review the operation of exchanges in the area.
Regarding the obligation to disclose real estate information when listing on exchanges, while the 2014 law did not clearly stipulate the “content about real estate”, Article 6 of the 2023 LREB has replaced it with a list mechanism, specifically detailing content including project investment approval decisions; decisions on land allocation and leasing; sample contracts; etc. Additionally, exchange service contracts have also been added to the list of types of real estate business contracts to clarify the rights, obligations, and responsibilities of exchanges and their customers as sellers and buyers.
In addition to exchanges, broker activities are also tightened, requiring individuals engaged in brokerage to operate under the management of a real estate exchange business or a real estate brokerage service business. Specifically, according to Article 62 of the 2014 LREB, regulations on the conditions for individuals practicing real estate brokerage require individuals to have a real estate brokerage certificate to operate, and according to Point b, Clause 2, Article 61 of the 2023 LREB, individuals practicing real estate brokerage must operate under the management of a real estate brokerage service business or a real estate exchange business.
This regulation aims to improve quality and professionalism in real estate brokerage activities, while minimizing the lack of transparency and professionalism of freelance brokers without a brokerage certificate. These regulations ensure that all brokerage activities are tightly controlled and comply with professional standards, helping to protect the rights of real estate transaction participants.
III. PRACTICAL ACTIVITIES OF REAL ESTATE EXCHANGES IN HỒ CHÍ MINH CITY
- General Situation of Real Estate Exchanges in Hồ Chí Minh City
By the end of 2022, only 61 real estate exchanges remained operational (“Inspection of 61 real estate exchanges in Hồ Chí Minh City,” 2022). Similar to the nationwide situation, based on statistics from the Ministry of Construction in Press Release 50/TC-BXD on April 21st, 2023, in the first quarter of 2023, statistics showed that approximately 30%-50% of exchanges had to close or temporarily suspend operations compared to the previous quarter.
The decline in the number of real estate exchanges stemmed from the negative impact during the period of stagnation in the real estate market due to the pandemic. After that period, the number of real estate transactions soared, leading to increased competition among exchanges and real estate brokers.
Besides the competition leading to the elimination of weaker exchanges, customer trust in exchanges could also be negatively affected by violations during their operations. Real estate exchanges were once used as tools in a major case, known as the Alibaba case. In Judgment No. 607/2022/HSST on December 29th, 2022, issued by the People’s Court of Hồ Chí Minh City, the issue of the independence between real estate exchanges and investors or sellers was not tightly controlled, leading to exchanges becoming “backyards”, cooperating with investors to negatively affect customer interests.
In another case, Judgment No. 11/2023/DSPT on January 4th, 2023, on the dispute over an apartment purchase contract issued by the People’s Court of Hồ Chí Minh City, Mrs. L signed an apartment purchase contract with TB company, the investor, through an exchange under L&L company.
At the contract’s due date, TB company did not fulfill its obligation to hand over the house, resulting in a dispute between the two parties. Mrs. L requested the cancellation of the contract and compensation for damages. During the case resolution, under the confirmation of the People’s Committee of District 8, the real investor of the case was D company. TB company admitted to intentionally signing the contract despite not being the investor of the mentioned apartment project.
This case highlighted the lack of honesty of TB company and raised questions about the project appraisal capability of L&L company as an exchange, as well as the exchange’s ability to access real estate data systems to determine the legal status of the parties, in this case, the investor, or the object of the contract allowed to participate in transactions.
- Some Issues in Legal Regulations on Real Estate Exchanges
In general, the regulation that encourages organizations and individuals to conduct transactions of buying, transferring, leasing, subleasing, and lease-buying houses, constructions, and land use rights through real estate exchanges is relatively suitable for the current policy and market context. However, through practical application, legal regulations on real estate exchanges still have some unresolved issues.
Firstly, the regulations on methods of providing real estate information to customers of real estate exchanges are unclear. The Ministry of Construction has issued a circular listing each category of information that must be provided to customers in Clause 2, Article 26 of Circular 11/2015/TT-BXD, including information such as geographical location, area, shape, value; documents proving legal status; cadastral files and maps; planning information; usage origin, etc. However, there are currently many methods for publicizing information. Traditional methods may include posting information at the exchange’s headquarters or in physical information handbooks.
With the development of the internet, many real estate exchanges have expanded the scope of sharing real estate information through electronic websites or social networks, commonly known as online real estate exchanges or e-commerce real estate platforms. Additionally, a method that needs strict control is direct consultation for transactions at the exchange. The abundance of methods makes it difficult for authorities to review the information provision activities of exchanges, and numerous sources of information can confuse transaction participants.
Moreover, there can be instances where real estate exchanges exploit uncontrolled platforms to exaggerate real estate information, affecting the rights of transaction participants.
Secondly, regarding the independence between real estate exchanges and investors or real estate sellers. From actions such as exchanges inflating real estate prices, colluding with investors to appropriate customers’ capital, and misusing funds, not only do they pose risks to customers but also affect real estate market activities, such as abnormal fluctuations in real estate prices. Furthermore, there have been instances of forging documents to prove the legality of real estate allowed to be traded, directly impacting the effectiveness of state management.
Such illegal business activities also pose a risk of causing state budget losses. In Hồ Chí Minh City’s real estate business market, given its important geographical location as the southern economic center, the role of market transparency, information provision, and data for state real estate management may face inefficacy.
Thirdly, regarding the responsibility of real estate exchanges for transaction confirmation in real estate business transactions. Essentially, notarization activities are judicial support activities, a measure to ensure legal safety, not an administrative procedure. For real estate exchanges, they are not yet considered a state management tool since they are not mandatory in some transactions like notarization and certification.
Real estate exchanges are a concentration, circulation, and intermediary place for real estate supply and demand managed and operated by real estate service businesses. Therefore, clarifying the content and significance of transaction confirmation through exchanges as a basis for determining the fault and responsibility of exchanges in the intermediary and brokerage process, supporting parties to establish transactions, is important. However, this has not been addressed in the 2014 LREB nor in the latest version set to take effect soon.
Additionally, the average service fee charged by exchanges is about 2% of the transaction value, with some opinions reflecting that transactions through exchanges can increase costs by 8-10% (Anh Minh, 2023). Thus, the uncontrolled service fee of real estate exchanges can hinder the public from accessing the intermediary model of real estate exchanges.
IV. RECOMMENDATIONS FOR IMPROVING THE LAW ON REAL ESTATE EXCHANGES TO PROTECT THE RIGHTS OF REAL ESTATE BUYERS: PRACTICES IN HỒ CHÍ MINH CITY
In addition to identifying issues in the completion of legal regulations governing real estate exchanges in Vietnam based on practical experiences in Hồ Chí Minh City, the authors propose recommendations suited to Hồ Chí Minh City’s context and the current legal enforcement practices.
Firstly, there should be comprehensive regulations to control the methods real estate exchanges use to provide information to customers. The Ministry of Construction should coordinate with other ministries such as the Ministry of Industry and Trade, and the Ministry of Information and Communications to determine appropriate management and inspection mechanisms for other information platforms of real estate exchanges such as electronic websites and social networks directly managed by the exchange.
As directed by Deputy Prime Minister Trần Hồng Hà during the review meeting to finalize the draft Decree detailing some provisions of the 2023 Law on Real Estate Business, the Ministry of Construction should coordinate with relevant agencies to strictly regulate the activities of electronic real estate exchanges, ensure information security, and the responsibilities of the operating units (Quý, 2024).
The process of providing information through direct consultation between brokers, advisors, and customers should also be documented in writing, such as minutes or attached to contracts to ensure the determination of fault levels in regulations on compensation for damages when the rights and interests of buyers are violated.
Secondly, it is necessary to supplement regulations to ensure the independence of personal relationships, management, operation, authorization, and ownership relationships between real estate exchanges and the sellers, which are real estate business enterprises or real estate project investors. The LREB’s reference to regulations on related persons, as exemplified in the Enterprise Law, can be considered for application to the relationship between real estate exchanges and sellers, which are real estate business enterprises or real estate project investors.
For example, a real estate business enterprise, which is a project investor, should not have an ownership relationship such as a parent-subsidiary relationship with the real estate service enterprise managing the real estate exchange if they wish to use the services of the exchange. Eliminating these relationships can limit conflicts of interest and self-interested relationships between the two subjects, ensuring a balance of interests between buyers and sellers and promoting a transparent and professional real estate market. However, concerning the scope of related persons, it is essential to note that overly strict regulations on related persons regarding real estate exchanges could affect business freedom, capital contribution freedom, and potentially impact the competitiveness of exchanges.
Thirdly, regulations on transaction confirmation on real estate exchanges are required. Establishing transactions can be likened to “notarizing” transactions that have been carried out on the exchange. Establishing transactions will help the parties understand their rights and obligations, facilitating the resolution of arising conflicts later.
As mentioned in the problematic section, notarization is not mandatory for all legal transactions, so specific regulations addressing this issue are necessary for practical law enforcement. The regulations can be codified in sub-law documents to adjust the details of transaction establishment. Specifically, legal regulations should require the content “transaction established through the real estate exchange” in the form of a document with signatures or seals of the parties in the transaction to ensure the document’s legal validity and its use in resolving disputes later.
Additionally, there should be regulations on the ceiling service fee for real estate exchanges. Limiting the service fee for real estate exchanges can help control service fee levels within a reasonable range, potentially segmenting fees by area or type of real estate being traded to limit the situation of high real estate transaction prices. At the same time, setting a ceiling fee enhances competition, as exchanges will need to focus more on reputation and quality rather than just relying on low fees.
However, as mentioned, the ceiling fee for real estate exchanges must be reasonably considered because, in essence, real estate service business activities in general or real estate exchanges, in particular, are established by enterprises aiming for profit. Therefore, when considering the ceiling fee for exchange services, it is crucial to balance the interests of the parties, with the exchange being an intermediary, ensuring that service fee control does not hinder the development, investment, and innovation of real estate exchanges.
V. CONCLUSION
Summarizing the research results, the authors find that the operation of real estate exchanges in Vietnam in general and Hồ Chí Minh City in particular is in the process of improvement and development. Although the comprehensiveness of legal regulations governing this issue has not reached an absolute level, the nature of real estate business is a field requiring growth not only in the legal aspect but also in the technical construction and state management aspects.
Thus, the authors have identified some shortcomings, considered as prominent issues currently faced by parties involved in a transaction on real estate exchanges. Based on these shortcomings, the authors have proposed relevant recommendations to improve the Vietnamese legal system in effectively protecting the rights of both real estate buyers and sellers.
The research uses data from the practical operation of real estate exchanges since this service model was legalized and widely used in the Hồ Chí Minh City market. The recent legal reforms in the real estate sector in 2024, such as the issuance of the 2024 Law on Land, the 2023 Law on Real Estate Business, the 2024 Law on Housing, and regulations on real estate exchanges have changed compared to previous regulations, reflecting that Vietnamese lawmakers are aware of and understand the necessity of establishing a clear legal framework for real estate exchanges. However, a legal framework needs to achieve comprehensive regulation of arising legal issues to stabilize practical application.
REFERENCES
- Agarwal, J. D., Agarwal, M., Agarwal, A., & Agarwal, Y. (2017). Theory of Land and Efficient Land Markets through Real Estate Exchange. Finance India, 31(2), 413-442.
- Anh Minh. (2023, April 12th). Economic Committee: Selling Real Estate through Exchanges Increases Costs, Raises Prices. VnExpress. Retrieved from https://vnexpress.net/uy-ban-kinh-te-ban-bat-dong-san-qua-san-lam-tang-chi-phi-doi-gia-4592298.html.
- Topic: American Real Estate Brokerage. (2020, June 16th). Retrieved from https://cafeland.vn/tin-tuc/chuyen-de-moi-gioi-bat-dong-san-my-88084.html.
- Inspection of 61 Real Estate Exchanges in Hồ Chí Minh City. (2022, October 27th). Retrieved from https://tphcm.chinhphu.vn/kiem-tra-61-san-giao-dich-bat-dong-san-o-tphcm-101221027140556011.htm.
- Linh, V. P., Hoa, L. T. M. & Huyền, V. T. A. (2024, October 30th). The Vietnam Real Estate Market – Current Situation and Solutions. Official Portal of the Ministry of Finance. Retrieved from https://www.mof.gov.vn/webcenter/portal/btcvn/pages_r/l/tin-bo-tai-chinh?dDocName=MOFUCM254595.
- Quý, N. (2024, June 26th). Strict Regulation on the Activities of Electronic Real Estate Exchanges. Electronic Journal of Vietnamese Lawyers. Retrieved from https://lsvn.vn/quy-dinh-chat-che-hoat-dong-cua-san-giao-dich-bat-dong-san-dien-tu-1719356343.html.
- People’s Court of Hồ Chí Minh City. (2022). Judgment No. 607/2022/HSST on December 29th, 2022.
- People’s Court of Hồ Chí Minh City. (2023). Judgment No. 11/2023/DSPT on January 4th, 2023, on Apartment Purchase Contract Dispute.
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