1. Overview
The real estate market is one of the cornerstones of Vietnam's economy. In the future, it has the potential to grow even larger and more significant. Real estate plays an important role in attracting resources and creating fixed assets for the economy. In Vietnam, the real estate market has long been a promising area for foreigners seeking long-term accommodation or business expansion.
Someone acquiring Land Use Rights ("LURs") could, technically, be considered to have acquired a piece of land in Vietnam. However, this is more complicated in practice. In this guide, we will set out some of the most important points investors should take into consideration before entering the Vietnamese real estate market.
2. What is the main legislation relating to real estate ownership?
Real estate ownership in Vietnam is mainly governed by the Civil Code 2015, the Law on Land 2013, the Law on Real Estate Trading 2014, the Law on Residential Housing 2014, the Law on Construction 2014, the Law on Enterprises 2020, and the Law on Investment 2020. The general regulations in these laws are elaborated in decrees or decisions issued by the Government or the Prime Minister and circulars from ministries. Examples include Decree No. 02/2022/ND-CP on guidelines for the Law on Real Estate Trading 2014, Decree No. 99/2015/ND-CP on guidelines for the Law on Residential Housing 2014, Decree No. 43/2014/ND-CP on guidelines for the Law on Land 2013, and Resolution 18-NQ/TW dated 16 June 2022 on the State's policies regarding land use and management, etc.
The State is now rapidly amending these regulations to align with the ongoing development of the real estate market. For instance, the Draft Law on Land and Law on Residential Housing have been published for public consultation, and will enter into force in the near future.
3. Have any significant new laws which materially impact real estate investors and lenders come into force since December 2021 or are there any major anticipated new laws which are expected to materially impact them in the near future?
The following regulations are worth noting:
- The Draft Land Law (amended). This includes 16 chapters and 245 articles. Of these, 28 articles remain unchanged, 184 have been amended and supplemented, 41 have been added, and eight have been annulled.
- The Draft Law on Housing (amended).
- The Draft Law on Real Estate Business (amended).
These drafts will be submitted to the National Assembly in the 5th session (May 2023) and 6th session (October 2023) together with the renewal of the Land Law to ensure alignment in their implementation.
4. How is ownership of real estate proved?
A certificate of LURs, house ownership rights, and other properties attached to the land ("LURC") is the main condition for existing houses and buildings to be made available for use and trade. Besides the LURC, these land parcels, houses, and buildings must also satisfy additional conditions. These include that they are not subject to a conflict or dispute, are not being distrained for the execution of a court judgment over the LUR, and that the land use term has not expired.
5. Are there any restrictions on who can own real estate?
Yes. Foreign organisations can own houses in Vietnam. However, there are restrictions on foreign-invested companies owning LURs. In fact, foreign-invested companies and foreigners are not allowed to register ownership over residential land.
6. What types of proprietary interests in real estate can be created?
In Vietnam, there is no specific legal term for land ownership. By law, land is under the ownership of "the people", with the Government acting as their representative and managing every aspect of the land.
Instead, individuals and organisations have LURs and ownership rights to buildings and structures on the land. Land users have, for example, the right to transfer, lease, sub-lease, give away, and mortgage their LURs; similar to ownership rights. Therefore, in practice, acquiring LURs could – technically – be considered as acquiring a piece of land in Vietnam.
7. Is ownership of real estate and the buildings on it separate?
In theory, yes. However, there are very few circumstances in which the ownership of real estate and buildings can be registered separately.
For example, if the house owner is not a land user: Landattached assets can only be granted LURCs if the owner has a land lease contract, capital contribution, or business cooperation document giving the land user's approval for housing construction. For other, nonresidential construction projects, if the project owner is not also the land user, they must have full paperwork proving their ownership of the project and written approval of the land user giving them permission to undertake construction.
8. What are common ownership structures for ownership of commercial real estate?
In Vietnam, commercial real estate is developed and sold by real estate developers. Commercial real estate can include apartments, villas, shophouses, etc. Those who purchase commercial real estate can register their ownership over it, the land area, and/or assets attached to the land, subject to their eligibility (i.e., whether they are Vietnamese individuals, foreigners, local companies, foreign-invested companies, etc.).
9. What is the usual legal due diligence process that is undertaken when acquiring commercial real estate?
The usual due diligence should cover critical aspects of the land sale, including legal, technical, financial, and accounting. While there is no universally accepted market standard of legal due diligence when acquiring real estate, purchasers should at least pay attention to the following points:
- The legal status and title of the real estate;
- The legal capacity of the sellers/transferors;
- The validity of the relevant certificates and permits;
- Review of the lease/sale and other relevant documentation of third parties;
- Legal checks on unsettled encumbrances, restrictions, disputes, or conflicts over the real estate;
- Land use planning and zoning; and
- Regulatory and financial obligations arising from acquiring the real estate.
10. What legal issues (if any) cannot be covered by usual legal due diligence?
The following issues cannot be covered by usual legal due diligence:
- Land use planning and zoning; and
- The history of the land acquisition process.
11. What is the usual process for transfer of commercial real estate?
Once the conditions for transferring real estate have been satisfied, both buyer and seller could refer to the following steps to conduct the transfer process:
- Preparing the draft transfer agreement and relevant documents;
- Notarising the transfer agreement at a notary public;
- Submitting the notarised transfer agreement along with the transfer application dossier to the land registration authority;
- Completing the financial obligations to the transfer by paying all relevant taxes and fees, and;
- If all the application dossiers are sufficient and valid, the land registration authority will issue the certificate reflecting the new owner of the LURs for the real estate.
12. Is it common for real estate transfers to be effected by way of share transfer as well as asset transfer?
Legally speaking, no. A real estate transfer must be in the form of an asset transfer because real estate is a type of asset. A share transfer does not involve or create a direct ownership over real estate.
13. On the sale of freehold interests in land does the benefit of any occupational leases and income automatically transfer?
Clause 2, Article 133 of the Law on Housing 2014 stipulates the right to continue renting a house if ownership of that house is transferred with tenants in situ. In this case, the new owner of the house is responsible for continuing the obligations of the previous lease contract, unless otherwise agreed by the parties.
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Originally Published by The LEGAL 500
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
