RESEARCH AND RECOMMENDATIONS FOR IMPROVING THE REAL ESTATE AND LAND USE RIGHTS EXCHANGE MODEL IN VIETNAM
RESEARCH AND RECOMMENDATIONS FOR IMPROVING THE REAL ESTATE AND LAND USE RIGHTS EXCHANGE MODEL IN VIETNAM
Nguyen Thanh Lan
Tran Thi Minh Thu
National Economics University
Vo Đong Tung
Ho Chi Minh City Department of Construction
Introduction
In Vietnam, approximately 1,600 real estate exchanges have been established over recent years. The activities of these real estate exchanges are progressively shaping a transparent market for real estate investors, yielding significant benefits for market participants.
Several real estate exchanges have made substantial investments in infrastructure and personnel training, leading to a gradual professionalization of real estate services. Furthermore, there has been a concerted effort to foster connections among exchanges, facilitating information exchange and enhancing service efficiency.
Nonetheless, the majority of real estate exchanges in Vietnam remain small in scale, lacking in professionalism, with limited financial capacity, and inadequate infrastructure and expertise. These exchanges have not prioritized the development of standards, management processes, or the provision of high-quality services.
The 2023 Law on Real Estate Business (effective from 01 August 2024) has codified several regulations concerning real estate exchanges. To effectively implement these regulations into practice in the near future, this report proposes several recommendations, including:
(i) Refining the organizational model of real estate exchanges provided by the private sector.
(ii) Enhancing the conditions and standards for real estate exchanges.
(iii) Improving the mechanisms for supervision and management of real estate exchanges, along with the reporting framework for regulatory agencies.
(iv) Developing and promulgating regulations on online real estate exchanges (electronic transactions at real estate exchanges).
I. Current Status and Issues in the Organization and Management of Real Estate Exchanges in Vietnam
In Vietnam, the real estate market plays a crucial role in the national economy. Since the formal establishment of the real estate market (following the 1993 Law on Land), Vietnam’s real estate market has expanded in both scale and complexity, with diverse participation from various entities.
In the real estate market, intermediary organizations hold significant functions, maintaining a close relationship with the market and acting as a bridge, aiding in the development of a more professional and sustainable market.
Types of real estate intermediary organizations include information providers, brokers, financial institutions, credit organizations, management entities, and real estate consultants. Among these, real estate exchanges are intermediary organizations that perform one or several services related to real estate as prescribed by law. The legal provisions governing real estate exchanges vary significantly from one country to another.
The purpose of establishing real estate exchanges is to publicize real estate information on the market, allowing market participants to search, reference, and utilize this information, thereby connecting market supply and demand.
Additionally, real estate exchanges assist state management agencies in collecting and aggregating information on real estate market activities. This enables the implementation of appropriate market regulatory measures, contributing to a transparent, stable, and sustainable real estate market.
In our country, real estate exchanges were first regulated by the 2006 Law on Real Estate Business (later amended and supplemented by the 2014 and 2023 Laws on Real Estate Business). According to Vietnamese real estate business law, a real estate exchange is a venue where transactions between parties involving the purchase, transfer, lease, sublease, and lease-purchase of real estate take place.
In the actual operation process from the time the 2006 Law on Real Estate Business took effect to the period of the 2014-2023 Law on Real Estate Business, several issues can be identified in the activities of real estate exchanges, as evidenced by the following aspects:
– First, the supervision and management activities from state agencies remain limited, leading to ineffective assessment of the capacity and quality of real estate exchanges.
Specifically, state agencies do not manage or fully grasp real estate market information as it occurs. Local Departments of Construction do not even know the exact number of real estate exchanges still in operation or those that have closed down. Consequently, the management agencies find it difficult to evaluate the true quality and capacity of real estate exchanges.
– Second, the 2014 Law on Real Estate Business does not mandate that real estate transactions be conducted through exchanges.
This has caused issues related to the transparency of real estate project information, including deliberate misinformation to deceive customers by some developers (real estate business entities). The lack of mandatory transactions through exchanges also makes it harder for the state to control the market, leading to cases of evasion of financial obligations, resulting in losses to the state budget. For customers, they lose an important channel that provides legal information about real estate projects.
– Third, the conditions for establishing real estate exchanges (as stipulated by the 2006 and 2014 Laws on Real Estate Business) are not suitable for practical needs.
A real estate exchange is a business form that directly relates to the real estate market. The regulations in the 2006 and 2014 Laws on Real Estate Business do not clearly specify the procedures and transaction processes to be conducted at the exchanges. This ambiguity affects the rights and interests of participating entities.
– Fourth, according to the 2014 Law on Real Estate Business, the condition to establish a real estate exchange is to have at least two individuals with real estate brokerage certificates, including a manager and an operator.
In reality, real estate exchanges typically employ an average of 30 to 50 staff members, with larger exchanges employing up to 200 or 300 personnel. Therefore, the establishment conditions are disproportionately small compared to the scale of employees. Additionally, there are numerous shortcomings in the training and examination processes for obtaining real estate brokerage certificates.
– Fifth, most real estate exchanges primarily serve as advertising platforms for developers and real estate brokers, rather than fulfilling their full range of functions such as reporting on real estate transactions and verifying the legality of real estate products before transactions occur.
There are cases where real estate exchanges collaborate with developers to bypass regulations by distributing products through intermediaries. In essence, these exchanges purchase real estate from developers, facilitating opportunities for both businesses and individuals to evade taxes, leading to state budget losses. Furthermore, practices such as stockpiling, price manipulation, and creating artificial market surges are common, causing market disruptions.
Notably, Resolution No. 18-NQ/TW, dated 16 June 2022, proposes measures to ensure transparency in the land use rights market and mechanisms for determining land prices, including mandatory transactions through real estate exchanges. The amended 2023 Law on Real Estate Business, effective from 01 August 2024, includes regulations directly affecting real estate transactions through exchanges.
Therefore, when implementing regulations related to real estate exchanges and land use rights, it is necessary to study policies to concretize the directives of the resolution and enforce the 2023 Law on Real Estate Business. Enhancing the model of real estate exchanges in Vietnam will contribute to improved transaction management and promote transparency in the real estate market.
II. Solutions and Recommendations for Improving the Model of Real Estate Exchanges in Vietnam
- Enhancing the Organizational Model of Real Estate Exchanges Provided by the Private Sector
By nature and organizational structure, real estate exchanges are enterprises that perform one or several services related to real estate, such as brokerage, real estate consulting, property management, or other real estate services as prescribed by law. To fulfill their functions, these enterprises must fully comply with legal provisions related to enterprises, real estate business laws, and other regulations relevant to real estate service business activities.
Practical experience and legal provisions from other countries, such as the United States, Singapore, and France, do not introduce the concept of a “real estate exchange” but rather legalize the concept of a “Real Estate Agent.” Individuals conducting real estate brokerage are referred to as real estate brokers or real estate agents.
In contrast, in Spain, a Real Estate Agent can be an individual or an enterprise acting as an intermediary between parties wishing to engage in legitimate real estate business activities. Real Estate Agents serve as intermediaries, representing either the buyer or the seller, but typically not both in the same transaction.
When it comes to the process of buying or selling real estate, Real Estate Agents are always ready to assist clients. Thus, in most countries, the organizational model of real estate exchanges is provided by the private sector—this is a real estate-related service offered by organizations or individuals as per legal regulations.
In Vietnam, real estate exchanges began to emerge on 19 June 2006 with the enactment of the 2006 Law on Real Estate Business by the National Assembly, which officially took effect on 01 January 2007.
According to this law, the activities of real estate exchanges include: buying, transferring, leasing, lease-purchasing real estate; real estate brokerage; real estate valuation; real estate consulting; real estate advertising; real estate auctioning; and property management.
State regulations (Article 56) mandate that organizations and individuals engaged in real estate business transactions involving the sale, transfer, lease, or lease-purchase of real estate must do so through real estate exchanges.
Moreover, the state encourages non-real estate business organizations and individuals to conduct real estate transactions through exchanges to ensure transparency and the protection of parties’ rights. This legal framework has motivated investors to establish real estate exchanges. In reality, thousands of real estate exchanges were established and began operating in Vietnam between 2007 and 2015, contributing to the development of the Vietnamese real estate market.
Following the enactment of the 2014 Law on Real Estate Business on 26 November 2014, which replaced the 2006 Law and took effect on 01 July 2015, certain regulations regarding real estate exchanges underwent changes. Consequently, real estate exchanges continued to be maintained and developed, albeit with significant changes in the mandatory nature of transactions through exchanges.
The 2023 Law on Real Estate Business introduces more detailed regulations, aimed at addressing the limitations of the previous laws (2006 and 2014).
Specifically, the 2023 Law on Real Estate Business sets forth principles for organizing the activities of real estate exchanges (Article 53). The conditions for the establishment and operation of exchanges have been delineated more clearly compared to the previous law.
To establish and register an exchange, organizations and individuals engaged in real estate exchange services must establish a real estate service enterprise. The name of the real estate exchange service enterprise, selected according to the provisions of the Law on Enterprises, must include the term “real estate exchange” and must not duplicate or cause confusion with the names of other registered real estate exchange service enterprises (Article 54).
The activities of real estate exchanges are also more specifically defined (Article 56). However, under the 2023 Law on Real Estate Business, the regulations still do not mandate that real estate transactions must go through exchanges.
In addition to the provisions of the Law on Real Estate Business, there is an ongoing proposal to combine the model of land use rights exchanges with real estate exchanges in the form of a state-run real estate transaction center.
This model, named the “Center for Real Estate and Land Use Rights Transactions,” is envisaged as a public service unit directly under the provincial/city People’s Committees, with its own seal to perform assigned tasks and exercise delegated powers. It operates under the direction and management of the provincial/city People’s Committees and receives professional guidance from relevant competent state agencies.
This center model is somewhat similar to the land offices (or branches of land registration offices) found in various localities.
The center has three main tasks: managing real estate transactions, managing tax collection, and issuing land use right certificates. The leadership of the center includes one Director and two Deputy Directors appointed by the Chairman of the provincial People’s Committee, along with professional and operational departments. The center is divided into at least four main functional areas: real estate transaction area, tax procedure area, land use right certificate issuance area, and consulting area.
The center’s operating funds are guaranteed by the state budget, allocated within the annual estimates for the regular activities of the Department of Construction or other public service units of the provincial/city People’s Committee as authorized by the competent authorities.
Additionally, the center can generate other sources of revenue from performing service activities related to its functions upon request by individuals and organizations, provided these activities are approved by the competent authorities and do not violate legal regulations.
Regarding the process of real estate and land use right transactions, the center operates under a one-stop-shop mechanism, enhancing the use of 4.0 technology systems to provide convenience for citizens and businesses.
After the seller and buyer reach a purchase agreement and complete the procedure for drafting a purchase contract as required by law, both parties access the center’s online portal, fill in the relevant house purchase information, submit an online application for the transfer procedure, and three competent authorities handle the application online, reviewing it according to their respective functions.
Within two working days, after the review is completed and the buyer receives a notification of approval, they can schedule an appointment at the center to immediately receive the real estate ownership certificate.
The public real estate transaction center model, as proposed by the Ministry of Construction, has the major advantage of centralized management and information collection regarding real estate and land transactions, thereby enhancing transparency in the information related to real estate transactions and land use right transactions.
Transactions through the real estate transaction center will minimize the risk of information shortages, thus helping to build a relatively complete and accurate data system on transactions and purchase prices closer to market values, effectively serving state management of land and real estate business activities.
However, requiring all transactions to go through the state-run real estate transaction center could limit the freedom of transaction for citizens. If mandatory without an effective control and operation mechanism, it could lead to information monopolies, negative impacts, manipulation, and market distortion. Furthermore, unreasonable procedural regulations could generate additional costs and administrative procedures for participants.
Therefore, the establishment of a state-managed real estate transaction center may not necessarily solve the problems of information transparency and market integrity if other stages in the real estate supply process are not strictly regulated, such as the legal conditions of projects, the obligations of developers, and the qualifications and capacities of officials in state management departments.
Thus, the model of privately provided real estate exchanges, operating as real estate service business units, plays a significant role in promoting successful transactions. These exchanges use various methods to advertise real estate products to customers and, with regulations on information provision, partly help bring information to the market.
With strict regulations and enforcement, current real estate exchanges will contribute to market transparency. However, some exchanges prioritize profits, disregarding legal issues of projects to make sales; developers may establish their own real estate exchanges to sell their products, compromising objectivity.
The regulation that does not mandate real estate transactions to go through exchanges in the 2023 Law on Real Estate Business reflects government support for the freedom of choice in transaction execution and assistance for citizens and real estate businesses.
Moreover, considering the advantages and disadvantages of the two models of real estate exchanges (public and private sectors) as previously discussed, to enhance the effectiveness of private sector real estate exchanges in promoting market information transparency, it is necessary to implement more specific regulations and mechanisms to ensure the development of real estate exchanges and improve market transparency, as follows:
– Clearly define the standards for establishing real estate exchanges and the standards for managers and operators of real estate exchanges, aiming to raise standards concerning hard conditions (e.g., premises size, organization, management personnel, and service provision at the real estate exchange).
– Strictly manage the activities of real estate exchanges; establish regulations for the operational procedures at real estate exchanges and make these regulations public for participants to monitor and follow.
– Clearly specify the procedures and forms of real estate service contracts at real estate exchanges to ensure compliance; establish and increase penalties for violations related to reporting and disclosing information about real estate listed at real estate exchanges.
– Enhance the professional qualifications of real estate brokers: establish a systematic and professional training and certification process for real estate brokers, ensuring that brokers have high professional qualifications and ethical standards, contributing to improved service quality and customer protection.
– Encourage real estate exchange service providers to apply technology in their business activities; implement a modern listing and transaction system to help real estate investors easily access market information.
Additionally, regarding the establishment of a land use rights exchange following the public service model of the state, it is necessary to research and develop a pilot project for establishing such exchanges in several localities, based on which a summary and evaluation can be conducted before official regulations are issued and applied nationwide..
- Supplementing Conditions and Standards for Real Estate Exchanges
– Additional conditions for the operation of real estate exchanges need to be established.
Besides the existing conditions prescribed by current laws, it is necessary to include requirements on: the financial capacity for enterprises to establish real estate exchanges, and the qualifications and professional expertise of employees working at the exchanges, who must possess real estate brokerage certificates.
– For the types of real estate brought for transactions at exchanges, specific conditions should be stipulated.
Relevant authorities within their duties and powers are responsible for publicly announcing information on land use planning, housing development plans, infrastructure investment information, and publicly disclosing information on qualified real estate exchange enterprises.
This is to ensure transparency and prevent fraudulent activities and real estate speculation aimed at illicit profits. Consequently, the types of real estate and the conditions of real estate put up for transactions at exchanges must ensure transparency and openness.
- Improving Mechanisms for Supervision and Management of Real Estate Exchanges and Reporting Regime to Regulatory Agencies
– Additional regulations concerning the control mechanisms for real estate exchanges need to be supplemented.
Transactions conducted on exchanges should disclose real estate prices, transaction procedures, related service fees, etc. This can increase the transparency of real estate project information, especially for future real estate.
– Increase administrative penalties for violations committed by entities within the real estate exchange model.
Government Decree No. 16/2022/ND-CP issued on 28 January 2022, which regulates administrative penalties for construction violations, provides the legal basis for handling violations committed by entities in general real estate business activities as well as in real estate service business.
Although the current penalties have been raised compared to previous legal provisions, there is still a significant gap between the fines imposed and the benefits obtained through violations.
For example, in cases where real estate listed on the exchange does not meet the stipulated conditions, the applicable fines range from VND 200 million to VND 250 million. In reality, these fines are negligible compared to the benefits derived from an entire real estate project, especially when entities intentionally inflate real estate prices.
Consequently, many business entities currently operate with the mindset of “fines are part and parcel of doing business,” significantly impacting market transparency, harming the lawful rights and interests of customers, and affecting overall state management processes.
Therefore, it is necessary to consider further increasing penalty levels for violations and adding supplementary penalties, such as extended suspension periods or mandatory termination of operations for serious violations.
- Developing and Promulgating Regulations on Online Real Estate Exchanges (Electronic Transactions at Real Estate Exchanges)
The 2024 Law on Real Estate Business for the first time addresses electronic transaction activities at real estate exchanges. However, there are currently no legal provisions directly regulating the operation and online business exploitation of real estate exchanges.
In essence, the legal frameworks for e-commerce in Vietnam are generally governed by the 2023 Law on Electronic Transactions, the Law on Information Technology, the Law on Commerce, among others, and the corresponding legal documents guiding the implementation of these laws. However, real estate transactions involve valuable and complex assets, in a context where information transparency and legal verification are critically needed.
Therefore, detailed and specific guidance on electronic real estate transactions at real estate exchanges is necessary. This is also an essential requirement to adapt to the current technological era.
References
- Trần Huỳnh Thanh Nghị (2023). Real Estate Exchanges in Vietnam: History and Perspectives from the Draft Law on Real Estate Business Amendments; Legislative Studies Journal, No. 16 (488), August 2023.
- Phạm Phương Nam, Phan Thị Thanh Huyền et al. (2021). Textbook on Real Estate Exchange Management, Agricultural Academy Publishing House,Hanoi.
- Ministry of Construction (2022). Summary Report on the Implementation of the 2014 Law on Real Estate Business and Orientation for Amendment.
- Vũ Thị Thương et al. (2024). Research on Real Estate Exchange Models in Several Countries and Lessons for Vietnam, Proceedings of the National Conference on Creating an Effective, Transparent, and Sustainable Real Estate Ecosystem: From Rent Theory to Proptech Technology, University of Economics, Vietnam National University, Hanoi.
- Doãn Hồng Nhung (2009). Improving Legal Framework on Real Estate Business Exchanges in Vietnam, Vietnam National University Publishing House, Hanoi.
- Lê Ngọc Tình (2023). The Nature of Real Estate Transaction Confirmation through Exchanges and the Legal Value of Notarized Documents, Legislative Studies Journal, No. 12 (484), June 2023.
If you need more consulting, please Contact Us at NT International Law Firm (ntpartnerlawfirm.com)
You can also download the .docx version here.
“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”
LEGAL CONSULTING SERVICES
090.252.4567NT INTERNATIONAL LAW FIRM
- Email: info@ntpartnerlawfirm.com – luatsu.toannguyen@gmail.com
- Phone: 090 252 4567
- Address: B23 Nam Long Residential Area, Phu Thuan Ward, District 7, Ho Chi Minh City, Vietnam