Legal risks in the real estate market

In a market where bending the rules is a common practice essential to competitiveness, involvement in a lawsuit over economic disputes is inevitable.


Recently, the hottest news on the real estate market has been the detection of violations in the land sector. Quite a few cases have ended up in court, sending many government officials and business leaders to prison. In comparison, in the previous years, the finance-banking sector was the center of public attention when a host of government officials and bankers were prosecuted.

The banking and real estate industries, the two backbone markets of the economy, have one thing in common. That is market participants must work in a business environment which is quite incomplete and where the rule of law is neglected in many cases. Observers of the finance-banking market must still remember rampant violations by financial institutions. In a market where bending the rules is a common practice and is essential to competitiveness, lawsuits involving economic disputes are bound to happen.

The unhealthy business environment is the main reason why many bankers have ended up in jail. They may have accidentally broken the law, or completely had no idea what they were doing was wrong. Instead of observing the law, market participants calmly committed violations as if they were a norm. Raising interest rates higher than the ceiling used to be a common practice in the banking industry, which had been in place long before cases involving banking officials were brought to court. When committing violations, some defendants simply thought they were doing just what their competitors did.

When misconducts take place on a large scale, and are regarded as a common practice and widely accepted, business people are prone to make mistakes due to their subjectivity. The finance-banking market had to pay the price before it could become healthier. The court cases were like warnings which give market participants a lesson about law observance so they can do business healthily and minimize risks.

The real estate market probably has not learned much from what happened to the banking industry a few years ago. It is noticeable that market participants tend to commit violations out of habit. In doing business, one often favors flexible ways to circumvent legal regulations, a habit which is likely to put real estate developers and traders at risk. Nobody could ensure that violators would be luckier than violators in the finance-banking industry.

The unhealthy business environment partly stems from the inadequacies of the legal system and policies. In the financial-monetary crisis which lasted from 2007 to 2011, the confusing, self-contradictory and inconsistent monetary policies indirectly sent many bankers into prison. The truth is, if they had strictly obeyed the rules set out by the authorities, they might have been unable to continue their business, and as a result, gone bust.

The legal system concerning real estate is suffering from major shortcomings. To carry out a realty project, investors must go through many procedures for approval at many levels and agencies. The legal regulations on the development of real estate projects are complex, including laws on land, housing, construction, investment, and planning, etc. It is noteworthy that despite being revised in 2013-2014, the system of legal documents related to real estate is still plagued with problems and shortcomings. For example, since the 2013 Land Law came into force, HCMC has identified and reported 109 inadequacies. Among them, problems involving State-owned assets, land use fee calculation or project appraisal are still bottlenecks, which causes miseries for enterprises. This on the one hand makes it difficult for real estate developers, and on the other, prompts businesses to bend the rules or even ignore them, instead of upholding them.

It is necessary to take a comprehensive look at the difficulties in the revision and formation of a workable, effective legal system to promote a healthy real estate business environment. In 2018, the Ministry of Construction proposed amendments to the four laws concerning the real estate market (the Law Amending and Supplementing a Number of Articles of the Construction Law, the Housing Law, the Law on Real Estate Business and the Urban Planning Law). Such proposal, when brought forward at the 23rd session of the Standing Committee of the National Assembly, failed to be endorsed, though. The Standing Committee of the National Assembly believed such separate amendments would not guarantee the consistency of the legal system related to real estate, which has been already way too complicated.

During the agonizing wait for a more complete legal system to surface, realty firms will still have to bear the legal risks.


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