COMMENTS FOR NEW HIGHLIGHTS OF DECREE 02/2022/ND-CP

Decree No. 76/2015/ND-CP, which was published by the Government on September 10th, 2015, has detailed the enforcement of some provisions in the Law on Real-estate Business 2014 (“Decree 76”). The application process has appeared obstacles and up to now, many regulations are no longer suitable with the need and practice of real-estate investment and business activities. In addition, the beginning of 2022 is the time when a series of new laws and decrees take effect, significantly affecting the legal corridor of the real-estate market. Therefore, the Government’s timely promulgation of Decree 02/2022/ND-CP detailing the implementation of a number of articles of the Law on Real-estate Business 2014 (“Decree 02”), suitably update with the provision of the Law on Investment 2020, guiding documents of Law on Investment 2020 and new regulations take effect from January 1st, 2022 above are essential. Decree 02 has a lot of new contents and adjusted regulations compared to Decree 76 in order to create greater consistency and synchronization in the system of other relevant legal documents. Especially, it is more practical and many regulations will overcome inadequacies, obstacles, and remove barriers for both entities participating in real-estate investment and business activities (i) and also, for the supervision and management of the State in this and related fields (planning, investment, land, tax, etc.) (ii).

In particular, the real-estate market in the meantime has started to become more active after a gloomy period of the investment and business market due to the influence of the Covid-19 pandemic. It tends to increase sharply in the post period of Covid-19 because of a lot of policies to support and promote this market by the Government and other Competent Authorities. Real-estate investment and business is also one of the fields that has a great and important impact on the socio-economic development of the country, therefore, new regulations such as Decree 02 are recognized by many experts. It is expected to be a push to help the real-estate market develop stronger but also be safer and more stable in the future.

This article summarizes and analyzes some new highlights of Decree 02 as follow:

Decree 02 has updated, adjusted and detailed the conditions of organizations and individuals that doing real-estate business to suit in accordance with the current legal provisions on land investment, construction, etc. including the following conditions:

(i) Conditions on legal capital and equity of investors: Decree 02 has removed the requirement that enterprises have a legal capital of 20 billion VND in addition to the provisions in Article 4, clarifying the owner’s equity level of the real-estate project of the investors based on the scale of land use, as well as the method of determining the level of equity.

Specifically, the investor must have equity not less than 20% of the total investment capital of the project with land use scale of less than 20 hectares, not less than 15% of the total investment capital of project with land use scale of 20 hectares or more. The determination of equity is based on the results of the most recent audited financial statements or the results of independent audit reports of the operating enterprise (made in the year or the preceding year); In the case of a newly established enterprise, the equity capital shall be determined according to the actual contributed charter capital as prescribed by law. When conducting real-estate business, the project investor must satisfy the conditions prescribed for organizations and individuals doing real-estate business. 

This adjustment not only complies with Point a, clause 2, article 75 of Law on Investment 2020 but also ensures to satisfy in conditions of financial capacity of real-estate project investors. This is one of the new regulations to help create conditions and opportunities for individuals and organizations with small financial scale to be able to participate in the real-estate business market. The new set of regulations will promote the excitement of the real-estate market in the near future. This adjustment also meets the actual needs of many small and medium-sized enterprises that are regularly involved in real-estate business but find it difficult or impossible to meet the legal capital level of 20 billion VND according to the old regulations.

(ii) Conditions on information disclosure: According to the provisions of point b, clause 1, article 4 of Decree 02, organizations and individuals took part in real-estate business will have to disclose the following information:

Specifically as follows: 

* For real-estate investment and business project: information must be disclosed on the enterprise's website, at the head office of the Project Management Board;

* For the case of business through the real-estate exchange: publicize the information at the real-estate exchange.

For publicly available information that is later changed, it must be promptly updated immediately after the change. The addition of this provision in Decree 02 is aimed at clarifying and enhancing the investor's responsibility for publicity and transparency of information on the real-estate market. This regulation gives organizations and individuals wishing to receive a real-estate transfer a more comprehensive view of the real-estate project or product that they wish to receive, but also requires a lot of information from organizations and individuals dealing in real-estate. 

(iii) Conditions that are required to put real-estate into business: Decree 02 supplements the regulations on trading real-estate that fully satisfy the conditions as specified in Article 9, Article 55 of the Law on Real-estate Business 2014. This regulation is synchronous, systematic, unified in regulations and guidance between the Law and its guiding documents, as well as being clearer and stricter for organizations and individuals carrying out activities in real-estate business.

Decree 02 adds the regulations regarding the sale, transfer, lease, lease-purchase in real-estate on small scale and infrequently of organizations, households and individuals are not required to have the conditions at the same as organizations and individuals doing real-estate business, including: 

(i) Agencies and organizations who sell houses and construction works, transferring land use rights due to bankruptcy, dissolution or division in accordance with the laws. 

(ii) Agencies and organizations who sell, transfer, lease, lease-purchase real-estate as public property in accordance with the laws.

(iii) Credit institutions, foreign bank branches, asset management companies of credit institutions (AMCs), asset management companies of Vietnam credit institutions (VAMC) selling houses, construction works, transfer of land use rights, transfer of real-estate projects being used as guarantees or mortgages for debt recovery in accordance with the laws.

(iv) Organizations, households and individuals who sell houses, construction works, transferring land use rights under decisions of courts or competent state agencies when settling disputes, complaints and denunciations. 

(v) Organizations, households and individuals who sell, lease, lease-purchase houses and construction works under lawful ownership, transfer, lease or sublease land use rights under their lawful use rights.

(vi) Organizations, households, and individuals who sell, lease, lease-purchase or transfer real-estate that they invest in and build, which are not real-estate construction investment projects for business as prescribed by the laws.

The aforementioned regulations will remove inadequacies and obstacles for many agencies, organizations and individuals listed in this Article and solve the practical needs of these subjects; especially transactions (irregular) for real-estate as public property and property that has been recorded as capital of the State in the enterprise. In practice, over the past time, many State-owned enterprises, subsidiaries of State-owned enterprises, non-business units, agencies, and a number of specific organizations have encountered many difficulties and being unable to establish transactions on the transfer, lease, lease-purchase of real-estate as public property, property that has been recorded as the State's contributed capital in the enterprise (because there are many views that the above activities are classified as commercial activities. If these entities do not have registered for real-estate business lines and do not meet the conditions for real-estate business, they cannot establish the above transactions). This problem becomes a barrier and conflicts with the principle of effective use of capital and assets of the State in enterprises because many real-estates are practically abandoned or not fully exploited but cannot be rented to generate revenue and cover expenses for enterprises according to the principle of preserving and effectively using the State's capital and assets.  

At the same time, when there are regulations for individuals and organizations that do not conduct real-estate business on a regular basis, the inspection, supervision and post-audit work of State agencies and ensure transparency real-estate transactions of individuals and households will also be enhanced. Because these transactions in practice are inherently still happening and very exciting, which is a practical need of the market, but they have to "do it underground" and thereby create opportunities for entities to have income from activities such as "tax evasion", "tax avoidance".

Article 6 Decree 02 regulates the real-estate sale, transfer, lease, lease-purchase and real-estate project transfer must enter a contract as the form regulated in this Decree’s Appendix, including:

(i) Contract for sale, lease-purchase of Apartment;

(ii) Contract for sale, lease-purchase of tourist apartment, officetel;

(iii) Contract for sale, lease-purchase of detached house;

(iv) Contract for sale, lease-purchase of house, building constructions other than the case (i), (ii), (iii) mentioned above;

(v) Contract for lease of house, building construction;

(vi) Contract for land use right transfer;

(vii) Contract for land use right lease, sub-lease;

(viii) Contract on transfer of all or a portion of real-estate project.

Forming separately the contract form of sale, lease-purchase for each of the house, building construction type (apartment, tourist apartment/officetel, detached house etc.) is considered an outstanding and reasonable change for real-estate trading, which is a really “hot” activity at the moment. Since each type of the real-estate has its own characteristics related to designing, building, operating and different legal features, the supplement of the contract forms of sale, lease- purchase, transfer for each real-estate type as Decree 02 is necessary.

Furthermore, the transactions of tourist apartment, officetel have taken place for a long time even though the Government did not have any specific guidance regulations on those transactions. Contract forms on the market made by the Investors themselves, applied for each project and detailed business policy with no uniformity. Decree 02 promulgates contract forms for type of tourist apartment, officetel and creates a unified reference base and made more favorable conditions for the Investor in registering the contract form to competent authority before engaging transaction.

However, it should be noted that Decree 02 promulgates contract forms for tourist apartment, officetel does not mean the Investors of all Project having investment purpose and trading this type are allowed to sell, transfer this type. In particular, according to Article 1 about interpretation of terms in Form 02 attached with Decree 02, tourist apartment, officetel for purchasing/selling transaction must be in the Project/Building with selling, leasing purpose approved in the legal dossier, design document of the project in compliance with the regulation of planning, investment, real-estate trading, construction, tourism.

Decree 02 has some vital points in the regulation on condition of transfer Contract for sale, lease-purchase of off-the-plan house and transfer Contract for lease-purchase of existing house, building as follow:

(i) The transfer of Contract for sale, lease-purchase of off-the-plan house and transfer of Contract for sale, lease-purchase of existing house, building do not apply with the case of social housing. This condition is supplemented to comply with the regulation in Article 59 of Law on Real-estate Business 2014, as well as consistent with the systematic, unified regulations guiding the transfer of Contract for sale, lease-purchase of off-the-plan house, which is not specified in Decree 76.

(ii) Regulating in detail and supplementing the condition in the case of allowing to transfer Contract for the sale, lease-purchase of houses and buildings, including:

(iii) The transfer of contract for sale, lease-purchase of houses and buildings shall be carried out for the entire contract. In case there is a sale, lease-purchase of many houses or building under a sole contract and the parties wish to transfer each house or building, the transferor must reach an agreement with the investor to amend the contract for sale, lease-purchase of a house or building or sign an appendix to the contract before transferring the contract in accordance with the provisions of this Decree.

The fact that Decree 02 contains systematic but detailed regulations on conditions related to the transfer of Contract for sale, lease-purchase of off-the-plan houses and the transfer of Contract for lease-purchase of existing houses and buildings is suitable. Moreover, it is expected to promote real-estate transfer/business transactions, which can help the investors and buyers to minimize any aroused disputes, problems or legal issues.

Decree 02 determines the principle, order and dossier for carrying out the procedure for transfer all or a portion of real-estate project as follow:

(i) The following real-estate projects shall implement the transfer under the law of investment:

(ii) For the real-estate projects that are not classified in the mentioned above, the transfer shall be implemented by the Law on Real-estate Business 2014 and Decree 02. 

It is understood that only the real-estate projects subject to investor approval (i) and granted an Investment Registration Certificate under the Law on Investment 2020 (ii) will apply the provisions of the Law on Investment; meanwhile all remaining real-estate projects other than two cases mentioned above will apply the provisions of the Law on Real-estate Business and Decree 02. This provision is consistent with Article 46 of the Law on Investment 2020, ensuring the separation and clarification of the cases of project transfer that will apply the provisions of the Law on Investment; and cases will apply the provisions of the Law on Real-estate Business.

In addition, Decree 02 also adjusts a number of contents about the condition, order, procedure for transferring a part or whole real-estate project. This content will be updated and complied into a separate article by Vietthink.

Decree 02 takes effect from March 1st, 2022 and replaces Decree No. 76/2015/ND-CP dated September 10, 2015 of the Government detailing the implementation of some articles of the Law on Real-estate Business 2014. Since the effective date of Decree 02, regulations on conditions for organizations and individuals trading in real-estate, the making and signing of real-estate business contracts, and the transfer of contract for sale, lease-purchase of off-the-plan houses, lease-purchase of existing houses and building, the transfer of all or a portion of real-estate projects as specified in the Decrees of the Government, Decisions of the Prime Minister, and legal documents promulgated by ministries, branches and provincial People’s Committees before the effective date of Decree 02 whose contents are in the scope of Decree 02 shall implement according to the provisions of this Decree 02.