Foreign investors join Vietnam real estate market

International treaties and Vietnamese laws relating to real estate investors
International treaties and Vietnamese laws relating to real estate investors

According to forecasters, Vietnam will be an ideal market for real estate investors to pour capital into after a long time of being affected by the Covid-19 pandemic. This comes from the success of the Government of Vietnam in controlling the epidemic as well as the policies issued recently.

Typically, in the first quarter of 2022, the Government has issued many policies that have a great impact on the real estate business such as Decree No. 02/2022/ND-CP which clarified the conditions that organizations must meet when engaging in real estate business… On January 30, 2022, the Government also issued Resolution No. 11/ND-CP on the program of socio-economic recovery and development and implemented and Resolution No. 43/2022/QH15 on fiscal and monetary policies, which recognizes the exemption and reduction of taxes, fees, charges and other regulations in order to improve the business investment environment. All of the above moves of the Government create confidence for foreign investors when investing in the Vietnamese market in general and the real estate sector in particular. However, real estate is a rather special and high-risk industry. Hence, before participating in the real estate market in Vietnam, investors need to understand the scope of activities that they are allowed to do, to eliminate risks in the investment process.

Real estate business activities according to international treaties and Vietnamese laws

Vietnamese law and international treaties to which Vietnam is a member have different regulations for each of these groups of business activities. Therefore, investors need to comply with Vietnamese law and market access conditions of each international treaty.

International treaties signed by Vietnam

In an effort to open up, promote its economic development and encourage foreign investment, Vietnam has signed many international treaties to welcome investors. Regarding the real estate business, Vietnam has now signed the following treaties:

International treaties and Vietnamese laws relating to real estate investors

Besides, Vietnam is also a member of the WTO, whose international treaty gathers 164 participating countries around the world, and among them, Vietnam recorded many commitments to open the door for foreign investors. However, Vietnam has not yet committed to real estate business services in this Commitment, investors participating in the Vietnamese real estate market will have to rely on the provisions of Vietnamese law to do so.

The provisions of Vietnamese laws

According to the Law on Real Estate Business, real estate trading means capital investment in building, purchasing, and receiving real estate for sale, transfer, for lease, for sublease, or for lease purchase; provision of real estate brokerage services; real estate trading floor services; real estate counseling services or real estate management for profit purposes. From this definition, the real estate business can be divided into the following groups of activities:

  • Construction, purchase, transfer for sale or transfer;
  • Lease, sublease, lease purchase of real estate;
  • Real estate brokerage which is acting as an intermediary for parties in the purchase, sale, transfer, lease, sublease, and lease-purchase of real estate;
  • Real estate trading floor which is the place where transactions on real estate purchase, sale, transfer, lease, sublease, and lease purchase take place;
  • Real estate consulting which is the activity of assisting in matters related to real estate business at the request of the parties.

According to the list of conditional business lines and industries of the Law on Investment and Real Estate Business (101), foreign investors are only allowed to operate within a certain scope. accordingly, real estate business activities that investors are allowed to carry out include:

  • Rent houses and construction works for sublease;
  • Invest in construction of houses on land allocated by the State for sale, lease, or lease-purchase;
  • Invest in construction of houses on land leased by the State for lease; invest in the construction of houses and construction works other than houses for sale, lease, or lease-purchase;
  • Receive the transfer of the whole or part of real estate project of the investor to build houses, construction works for sale, lease, lease purchase;
  • Invest in building houses and construction works for leased land in industrial parks, industrial clusters, export processing zones, high-tech zones, and economic zones for business in accordance with land use purposes;
  • Provide Real estate brokerage services, real estate trading floors, real estate consulting, real estate management.

However, it should be noted that for lands, foreign-invested enterprises are only allowed to receive the transfer of investment capital which is the value of land use rights of the enterprise currently using land from which the State has allocated land with collection of land use fees, Land lease with a one-time payment for the entire rental period where the value of land use rights has been capitalized into the capital of the enterprise, except for the case of transfer of investment capital which is the value of the right to use agricultural production land or forestry land according to the Land Law.

Matters needing attention

From the above provisions, it can be seen that Vietnamese law is not completely open to foreign investors in the real estate business in VietnamThus, before making capital contribution transactions, In the real estate business, investors should pay attention to a number of issues such as:

  • The target company’s scope of activities in the real estate business. For industries that Vietnam has not committed to opening, investors may take more time to receive approval from specialized ministries or have to remove these uncommitted industries.
  • The international treaty shall apply to enjoy the conditions of market access restriction.
  • Quantity, form, origin and location of real estate owned by the target company.

Above is our overview analysis of the legal framework for the real estate business when investors contribute capital to Vietnamese enterprises. If you have any questions regarding this, please contact PLF for support.

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.