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Comments on Draft on Law on Real Estate Business

In May 2023, the Ministry of Construction and VCCI collaborated in organizing a seminar to discuss the Draft Real Estate Business Law. This seminar provided an opportunity for the enterprise community and experts to share their opinions and comments on the draft. The version of this Draft Law that was presented at the seminar is believed to be the most recent one before its submission to the National Assembly. The adoption of the new Draft Law by the National Assembly is scheduled to take place in November 2023 and here are some comments about this coming soon Draft Law

Expanded Definition of “Real Estate Projects”

The proposed Draft Law introduces a broader understanding of what constitutes a “Real estate project.” According to the draft, a “Real estate project” refers to a project with approved land use intended for investment in the construction of residential houses, various construction works, and technical infrastructure. This includes:

+ Investment projects focused on the development of residential houses, urban areas, and mixed-use constructions.

+ The projects aimed at developing infrastructure for industrial zones, industrial clusters, export processing zones, and high-tech zones.

+ Investment projects for the development of other civil construction works.

It is important to note that under Circular 12/2022 issued by the Ministry of Construction, civil construction works encompass a wide range of projects such as hospitals, schools, theaters, airports, and train stations, as well as offices. Consequently, the expanded scope of the Draft Law may lead to potential overlaps with other existing laws, such as the Law on Education, resulting in inconsistencies. Ideally, it would be preferable for the Draft Law to focus solely on certain types of real estate commonly traded in the market to avoid such inconsistencies.

Rules on implementation of the Law on Real Estate Business and related legislation

The Draft Law outlines certain guidelines for applying the Law on Real Estate Business in conjunction with other relevant laws. The main points are as follows:

a. Real estate business activities in Vietnam must adhere to the provisions of both the Law on Real Estate Business and other pertinent laws.

In the event of any conflict between the laws, the Law on Real Estate Business will take precedence, except in cases involving the transfer of equity interest. For equity transfers, the regulations of the Enterprise Law, Investment Law, Securities Law, and Cooperative Law will apply instead. This implies that transferring equity interest in a real estate developer will not be classified as a transfer of real estate or a project under the Law on Real Estate Business.

If the effective date of the Law on Real Estate Business is after the enactment of new laws, and assuming these new laws contain specific regulations on real estate business that differ from those outlined in the existing law, it is crucial for these new laws to clearly stipulate which matters will adhere to the Law on Real Estate and which matters will be governed by the new laws. Without such clarity, the Law on Real Estate Business will continue to apply.

b. The resolution of legal matters related to real estate business must align with the provisions of the Law on Real Estate Business and other applicable laws that were in effect at the time the real estate business transaction occurred.

If we assume that the Draft Law does not unnecessarily expand its scope, as discussed above, this proposed legislation could potentially bring about positive changes. Moreover, it could help to mitigate potential conflicts between different laws applicable to the real estate sector.

Scope of doing business of foreign-invested economic organizations

The Draft Law now clarifies the scope in which foreign-invested economic organizations can engage in real estate business activities. This includes the development of infrastructure on land through a real estate project for the purpose of transferring, leasing, or sub-leasing land use rights that already have built-in infrastructure.

Various sections of the Draft Law make reference to the term “foreign-invested economic organization.” It is worth noting that this term appears to have the same meaning as defined in the Investment Law 2020. However, the Draft Law also uses the term “foreign-invested enterprise” without providing a specific legal definition. Furthermore, we hope that this is simply a drafting error and that the drafter intends to refer to the concept of a foreign-invested economic organization. In light of this, it would be helpful for the Draft Law to provide clarity on its terminology to avoid any confusion or misinterpretation.

Entities eligible to acquire, receive, rent, or lease

According to Article 16 of the Draft Law, foreign entities have the right to purchase or rent houses for their own use. However, it is unclear why the draft law does not explicitly address the ability of foreign entities to lease other types of real estate, such as factories or office buildings, for their use. Consequently, this omission may be a drafting error, as the current Law on Real Estate Business of 2014 allows foreign entities to rent real estate for their use.

Similar to Article 14 of the Law on Real Estate Business of 2014, Article 16 of the Draft Law also does not clarify whether a foreign-invested economic organization has the right to lease construction works for their use. This, too, appears to be a drafting oversight.

Conclusion

In conclusion, there are several key concerns and suggestions raised regarding the Draft Law. Moreover, it is important for stakeholders and policymakers to diligently review and address these issues. This will ensure that the final law provides clarity, fairness, and necessary protections for all entities involved in the real estate business. Additionally, by taking into account the feedback received and making appropriate revisions, it is possible to create a robust and effective legal framework. Such a framework would foster transparency, encourage investment, and promote a thriving market. Only through thoughtful consideration and inclusive dialogue can the Draft Law fulfill its purpose of regulating the industry and contributing to the overall development of the real estate sector.

HMLF is always available to offer assistance in understanding the procedures with authorities.

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Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
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Website: hmlf.vn Email: miller@hmlf.vn

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