On 25 November 2014, the Vietnam National Assembly passed the new Housing Law and the Law on Real Estate Business with many reforms. The Law changed Vietnam property foreign ownership. It is a legislative breakthrough that establishes a transparent legal framework to meet the changing needs of Vietnam’s real estate market. At the present, Vietnam becomes one of the most attractive markets in Southeast Asia.
Law changes allow foreign residential property ownership
Before 2009, foreigners wanting to move to Vietnam cannot legally acquire property. The only way for them to have property ownership in Vietnam was to form a joint venture with a Vietnamese company. Five years ago, the National Assembly passed Resolution 15, which allowed some foreigners to purchase houses. However, a foreigner could purchase one condominium apartment of no more than 50 years. They could only use the houses purchased for residing and not for leasing, office use or other purposes. This limitation caused many difficulties for foreigners in buying and using the property. It also was one of the reasons that make Vietnam’s real estate market was gloomy in the previous years.
The new Law in 2014 has removed critical obstacles to foreign property ownership. It has allowed foreigners to legally own, sell and transfer real properties. There are more individuals and entities who can purchase houses. For example, investors with residential house construction projects in Vietnam; foreign-invested enterprises, branches and representative offices of foreign enterprises, foreign investment funds and branches of foreign banks operating in Vietnam; and foreigners permitted to enter Vietnam (Article 159, Chapter IX, Vietnam’s Housing Law 2014).
Now, foreigners can own all types of properties including condominiums and landed property such as villas and townhouses. Especially, different from the past, the properties owned by foreigners can be sub-leased, inherited and collateralized (Article 11, Section 1, Chapter II, Vietnam’s Law on Real Estate Business 2014). For foreign individual, the house ownership period is 50 years and the owner can extend that if they want. For separated residential houses, including villas and attached houses in a population area equivalent to a ward administrative unit, the permitted subjects may purchase, lease-purchase, receive as a donation or heritage, possess up to 30% of total units in an apartment building or 250 houses in a ward (Article 161, Chapter IX, Vietnam’s Housing Law 2014).
Many reforms, but some “grey areas” still exist
Despite progressive reforms, there are still some ‘grey areas’ in Vietnamese laws. These may create difficulties in interpretation, application and compliance. Firstly, it is the lack of detailed guidance of the Government on implementing the laws. That has caused delays in business procedures and investment registration. In addition, some concerns exist over the ambiguity of the laws and the uncertainty regarding how they will be implemented in the coming guidance, including the following:
- Suppose investors buy a property for 50 years and 49 years later. If they want to sell it to a Vietnamese, will that become a freehold property? Or if they sell to another foreign investor, will that property is a 1-year or 50-year lease?
- What are the conditions and detail procedure that investors need to follow if they want to extend property ownership after 50 years?
- Will foreigners who buy residential properties from Vietnamese individuals be subject to the ratio limit?
- How will the ratio limit on foreign ownership be enforced? (Example, not over 30% of total units in an apartment building or 250 houses in a ward). Further, how can developers check such information in order to undertake a proper legal sale?
All above problems are “the grey areas” and still unclear now. They are investment risks that the investors need to mitigate.
How investors can mitigate risks?
To avoid and mitigate risks, investors should do research and plan carefully. It is necessary for them to get an understanding of the most critical permits they will need and ensure they fully understand how to comply with all the local regulations. It is also worthwhile consulting with lawyer who can help them to understand thoroughly the law and prepare necessary legal procedures. They can also find a local partner early on who can help them understand and deal with the regulations, permits and laws….
When risks occur, investors should estimate both the pros and cons of each resolution against the current market condition and the current investment strategy, to find out the best solution. Moreover, before investing in a new market, investors should examine attentively whether or not they were suitable for the market, because each country having its own characteristics is only suitable for certain types of investor.