Real estate business: restrictions for foreign investors
Real estate business: restrictions for foreign investors
Real estate is one of the areas that attracts great interest from investors in Viet Nam. However, investment in this sector is currently restricted by quite a few regulations.
Smaller scope of investment compared to domestic investors
Foreign investors are prohibited from attempting two types of investment activities. First, they cannot sell divided land slots or invest in the development of technical infrastructure for a cemetery in order to transfer the land use rights attached to that infrastructure. Second, with regard to the construction and building of houses, foreign investors cannot purchase to sell, lease, or offer a lease purchase, but can only rent to sublease.
Restrictions on the number of houses permitted for ownership
Under Article 161 of the 2014 Housing Law, foreign-invested enterprises, foreign investment funds, branches of foreign banks operating in Viet Nam and foreign individuals that have been granted entry into Viet Nam may purchase, hire purchase, receive as gifts, inherit or own 30 per cent or less of the apartments in one building. In the case of single dwellings, including villas and semi-detached houses, no more than 250 houses can be purchased, lease purchased, received as gifts, inherited or owned in an area with a population equivalent to a ward-level administrative unit.
Decree 99 issued on October 20, 2015, contains detailed regulations on such cases. Specifically, for investment in commercial houses, where single houses are available for sale or hire purchase in an area with a population equivalent to a ward-level administrative unit, the foreign organisation or individual may own a number of individual houses as follows:
- One project with fewer than 2,500 single houses: Foreign organisations and individuals are allowed to own no more than 10 per cent of the total number of houses in the project;
- One project with 2,500 single houses: Foreign organisations and individuals are allowed to own no more than 250 houses in the project;
- Two or more projects with a total of 2,500 or fewer single houses: Foreign organisations and individuals are allowed to own no more than 10 per cent of the total number of houses in each project.
Limiting proceeds before buying and selling real estate that will be formed in the future
The payment of a contract value for real estate that will be formed in the future is done in several stages, based on construction progress. Before handing over the house or construction project to the customer, foreign-invested enterprises are only permitted to collect up to 50 per cent of the contract value, while the maximum rate applied to domestic investors is 70 per cent.
Risk of land retrieval
In reality, many investors working on real estate projects are unable to complete them on time and end up having their land retrieved. As investors still encounter difficulties related to administrative procedures and fail to reach an agreement with the locals when providing compensation and ensuring site clearance, they are often faced with land retrieval.
In addition, in order to be approved, investment projects in the real estate business must conform to the plan for land use in urban and rural areas. It is mandatory for plans to be confirmed by the concerned authorities.
