BUSINESS ARTICLES

Foreign investors with real estate business

Foreign investors with real estate business
Foreign investors with real estate business

Vietnam’s real estate market is an emerging market, which is on a rapid growth trajectory, attracting more and more foreign investors to participate. However, because it is a business that brings great profits, but also high risks and has far-reaching impacts on other economic activities, the law has regulated business investment conditions in the real estate field. In particular, foreign investors operating in the real estate business will be limited by certain business forms and statutory conditions.

1. What can foreign-invested enterprises do?

Foreign-invested enterprises (including 100% foreign-invested enterprises, joint-venture enterprises, and Vietnamese enterprises in which foreign investors purchase shares, merge or repurchase in accordance with the provisions of the law on investment) can operate in real estate field with the following forms:

  • Lease houses and construction works for sublease.
  • Purchase of the whole or a part of real estate projects of the investor to build houses or construction works for sale, lease, or lease purchase.
  • For lands leased by the State: The foreign investors are allowed to invest in construction of houses for lease; construction of houses or construction works other than houses for sale, lease, or lease-purchase.
  • For leased lands in industrial parks, industrial clusters, export processing zones, hi-tech zones and economic zones: Foreign investors are allowed to invest in construction of houses and construction works for business purposes according to the land use purposes.
  • Real estate brokerage agent, real estate exchange, real estate consultant and management in accordance with the Law on real estate business.

Accordingly, foreign-invested companies are only allowed to conduct real estate business activities within the scope mentioned above and the remaining activities such as buying houses, construction works for sale, lease, lease-purchase; investing in the construction of houses for sale, lease or lease-purchase for land allocated by the State; transferring the land use right in the form of subdivision, ground sale in accordance with the provisions of the Land Law; investing in the construction of technical infrastructure of cemeteries and graveyards for sale associated with such technical infrastructure; investing in the construction of houses and construction works for sale, lease or lease-purchase for land recognized by the State; investing in the construction of houses and construction works for sale, lease, or lease-purchase for land transferred from organizations, households or individuals; purchasing or leasing of land use rights from organizations, households and individuals to invest in the construction of technical infrastructure for sale or leasing of land already having such technical infrastructure allowed to perform.

2. Conditions and obligations of foreign investors in real estate business

Previously, the foreign invested companies must meet the legal capital requirement of at least VND 20 billion when investing in the real estate business. This legal capital requirement was abolished with the Law on investment 2020 effective from 01 January 2021. Accordingly, foreign real estate companies no longer need to invest VND 20 billion.

Companies with foreign capital must meet the following conditions after investing in real estate business:

  • Must establish an enterprise in accordance with the law on enterprises and have a business line of real estate.
  • In case an investor is selected as the investor of a real estate project according to the provisions of the law, such investor must have an equity capital of not less than 20% of the total investment capital for the project having a land use scale of less than 20 hectares, less than 20% of the total investment capital for the project having a land use scale of 20 hectares or more. The determination of equity is based on the results of the most recent audited financial statements or the results of the Company’s independent audit reports (made in that year or the preceding year). In the case of a newly established company, the equity shall be determined according to the actual contributed charter capital as prescribed by law.
  • Must only trade in real estate that meets the prescribed conditions, specifically: (i) Houses and construction works must have registered ownership of houses and construction works attached to land in the certificate of land use right. For existing houses and construction works in real estate investment and business projects, only a certificate of land use rights is required in accordance with the provisions of the land law. There must be no disputes over land use rights, ownership of houses and construction works attached to the land. There Must not be distrained to secure judgment enforcement. (ii) All allowed types of land that are to trade in land use rights must have a certificate of land use rights in accordance with the provisions of the land law. There must be no disputes over land use rights. The land use right must not be distrained to secure judgment enforcement. It Must be within the land use period.
  • When doing business in housing forms in the future, the company must meet the following conditions: (i) Having certificate on land use rights, project dossiers, construction drawing designs approved by competent authorities, construction certificate in case a construction permit is required, papers on acceptance of completed construction work of corresponding technical infrastructure according to the project schedule. In the case of an apartment building or a mixed-use building that will be built in the future, there must be a record of acceptance and completion of the foundation of that building. (ii) Before selling, lease-purchase housing forms in the future, the investor must notify in writing the provincial housing management agency that the house is eligible for sale or lease purchase.
  • Obligation to disclose information: The company shall take responsibility for disclosure of real estate on the website of the real estate enterprise, at the Head office of Project management board regarding investment project on real estate trading, on the real estate trading floors (regarding real estate trading through trading floors). Public information includes (i) Information about the Company (including name, head office address, contact phone number, name of the legal representative), (ii) Information about real estate contains such as: Type of the real estate; Location of the real estate; Information about planning related to the real estate; Scale of the real estate; Characteristics, utilities and quality of the real estate; information about each utility and general use area if the real estate is a mixed-use building or an apartment building; Actual conditions of constructions or services related to the real estate; Documents on ownership of buildings and land and documents related to real estate construction; guarantee agreement, written permission for off-the-plan building sale or lease purchase transactions granted by competent agencies; Restrictions on ownership of or rights to use real estate (if any); Real estate sold, transfer, lease, sublease, lease purchase price, information on the quantity and type of real estate products being traded, the quantity and type of real estate products sold, transferred, lease-purchased and the remaining quantity and types of products that are still being traded. As for the publicly available information specified at this point, which subsequently changes, it must be promptly updated immediately after the change.

3. Some restrictions in real estate transactions and business with foreign elements

  • The payment in the purchase, sale, lease purchase of real estate formed in the future must not exceed 50% of the contract value for company with foreign investors. While for domestic enterprises, the corresponding figure is 70%.
  • Foreign companies and individuals may own no more than 30% of the total of apartments in an apartment building. In case there are many apartment buildings for sale or lease purchase in an area with a population equivalent to a ward-level administrative unit, foreign companies and individuals may own no more than 30% of each apartment the apartment of the ward and not more than 30% of the total number of apartments of all apartment buildings of the ward.
  • In case there is an investment project to build commercial housing in an area with a population equivalent to a ward-level administrative unit, including separate houses for sale or lease purchase, the foreign companies or individuals are allowed to own the number of separate houses according to the following regulations:
    • In case there is only one project with less than 2,500 separate houses, foreign companies and individuals may own no more than 10% of the total number of houses in that project;
    • In case there is only one project with the number of separate houses equivalent to 2,500 units or more, foreign companies and individuals may own no more than 250 apartments;
    • In case there are two or more projects and the total number of separate houses in these projects is less than or equal to 2,500 units, foreign companies and individuals may only own no more than 10% of the number of houses in each project.

Thus, to carry out real estate business activities in Vietnam. Foreign investors must meet a number of specific conditions and are limited in the scope of their business. Therefore, investors need to research, understand the market and policies carefully before investing to avoid risks in real estate business.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.