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Legal obstacles persist, Vietnam real estate awaits new laws

Legal obstacles persist, Vietnam real estate awaits new laws

Sunday 19, 05 2024
Numerous bottlenecks in the process of completing the legal documents for real estate projects have continuously hindered the supply in the market, preventing it from being unlocked.

The legal procedure matrix

Examining the legal hurdles in the process of implementing real estate projects, which are still very challenging, Dr. Tran Xuan Luong, a real estate specialist and lecturer at the National Economics University, estimates that thousands of businesses nationwide are facing difficulties due to legal obstacles.

Typically, a real estate project takes at least two years to complete administrative procedures, but it takes at least five years for the project to reach the construction phase, according to Luong.

The reason is that after the administrative procedures, the project still has to go through land clearance compensation, resettlement, planning approval, construction permits, etc. These are all time-consuming stages for businesses.

"Some projects only complete the initial investment preparation procedures and then remain stagnant indefinitely, unable to proceed with construction due to legal obstacles, making it very difficult to unlock," shared Luong, who is also the Deputy Director of the Institute for Real Estate Market Research and Evaluation in Vietnam.

To complete the legal documents for a real estate project, from the investment idea to launching the project on the market, developers must complete nine important steps, corresponding to nine types of legal documents required for the project.

Luong divides the process of completing the legal documents for a real estate project into two stages: the investment preparation stage and the investment implementation stage.

According to the provisions of Article 55, Article 56 of the 2024 Real Estate Business Law; Article 19 of Decree 99/2015/ND-CP dated October 20, 2015, and Clause 17, Article 1 of Decree 148/2020/ND-CP, a project is considered eligible for future residential sales when it has nine types of legal documents.

legal obstacles for Vietnam real estate

At the investment preparation stage, the project first needs an investment decision, an investment certificate, and project approval.

Secondly, it requires a confirmation of investment deposit. Thirdly, it needs investor recognition and investor decision.

Fourthly, at the investment implementation stage, the project needs land allocation decisions, land leasing, land use purpose transfer, and accompanying financial obligations.

Fifthly, the project needs overall layout approval and 1/500 approval, approved construction design drawings.

With all these documents in place, the project can obtain a construction permit. Simultaneously, the project will undergo bank evaluation for loan guarantees.

At the eighth step, after completing the foundation construction and having an acceptance record for the foundation construction, the project will be eligible to announce its readiness for market launch.

According to Luong, currently, not many businesses can complete the legal procedures for real estate projects. This is the reason why projects are stalled, unable to proceed with construction, or even completed and handed over to customers but still unable to obtain red books.

Among these, the "golden" stage in the project's legal process is from being recognized as the investor to obtaining a construction permit. Many projects are stuck right from the preparation stage, unable to gain investor recognition.

On the other hand, there are also projects recognized as investors but lack financial capacity for land clearance, land allocation, land leasing, and land use purpose transfer.

According to current legal regulations, when implementing a project, investors must deposit 20% of the total development capital, 15% for projects larger than 20 hectares.

In theory, the amount of investment preparation should be about 5-10% of the total project development capital. However, in reality, businesses spend up to 20%. Therefore, by the time the project is certified as an investor, the total amount of deposit has been "completely depleted."

This means that businesses are forced to mobilize capital from outside if they want to proceed with the next investment steps such as land allocation, land clearance, incurring significant costs before the project is completed and ready for market launch.

Hope in the Revised Land Law

According to Luong, the legal deadlock in the real estate market has led to a bottleneck in the supply, affecting the sustainable development of the market.

In the past time, the Government and related ministries and sectors have vigorously issued many resolutions, decrees, and new documents to remove bottlenecks, helping the market develop sustainably. However, these are only short-term solutions. The above policies are situational solutions, not long-term fundamental measures…

In the long run, the 2024 Land Law with clearer, more transparent regulations is necessary to steer the market towards stable and sustainable development.

The lingering issues "not yet properly addressed" in the past now have solutions in the new law. Accordingly, citizens, authorities, and businesses operating in the real estate sector will benefit.

One of the 10 new points of the 2024 Land Law pointed out by Luong is the provision on 32 cases where the state recovers land for economic and social development for national and public interests. In other cases, businesses must negotiate to clear land with the people, ensuring transparency.

Vietnam real estate awaits new laws

Moreover, the revised Land Law has abolished the land price framework, issuing annual land price lists to price land based on market principles, avoiding waste and loss of land resources, contributing to social fairness and stability.

Projects can no longer be carried out through "requests - grants" but must be allocated or leased through auctions, tenders to ensure transparency.

Luong believes that the new law's provisions will gradually remove legal bottlenecks in the market, helping the real estate market develop sustainably.

However, the new law is only the "backbone"; decrees, circulars guiding the implementation of the new law are the documents that specify and solve practical problems.

So far, the law has been passed, but businesses and investors are still awaiting decrees, circulars, therefore, the market still has a certain "delay".

Source: theleader

Compiled by VietnamCredit

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