Regulations to shield off-plan property purchases
Regulations to shield off-plan property purchases
Off-plan property is an asset chosen by many professional and retail investors. However, as the legal framework for off-plan buildings is not synchronised and complete, there are many potential risks in buying such property.
Off-plan buildings are properties in the process of construction. At the time of signing the contract, the buyer can only access the project's legal documents or refer to the model house to visualise the property.
According to experts, the current Laws on Housing, Real Estate Business, Land, Investment and the Civil Code have inconsistent regulations on off-plan property, creating obstacles for the implementation and application of laws in real estate.
The Ministry of Construction is collecting opinions on draft amendments to the Law on Real Estate Business 2014. The Ministry also points out the shortcomings and limitations related to this type of asset.
Firstly, regulations on off-plan business concentrate on housing, but there is a lack of details for construction works, which has not created favourable conditions for future construction work.
The rights of investors in off-plan business activities are limited by forms of sale, transfer and lease purchase. There are still no regulations for investors to use off-plan to mobilise capital for project implementation.
Meanwhile, the Law on Real Estate Business has not regulated clearly on off-plan property for business purposes, such as whether all construction work or just some cases are for sale or lease purchase.
Besides, regulations on the guarantee in sale and lease purchase of off-plan properties, they still lack details as they are not applicable for off-plan that is for sale or lease.
The Law on Real Estate Business also lacks regulations on transferring contracts of purchase, sale and lease purchase of off-plan properties.
The inadequacies and lack of synchronisation in the legal system have caused significant damages in the past.
Many customers who put their trust in investors were deceived. They spent all their savings and even borrowed from banks to buy houses, but still have not received their assets after a decade.
Le Van Hoi, director of My Way Law, said that only housing has its own law, which was the Law on Housing 2012, while others were mainly regulated in the Law on Real Estate Business, resulting in many challenges in applying and implementing the law.
Recently, there has been a boom in transactions of tourist accommodation and tourist villas, but there is no clear legal framework for these types of property, Hoi said. Thus it has created many problems, requiring a lot of guiding documents from related State agencies.
Although in the contract of sale and purchase of off-plan properties, the two parties specifically acknowledge the brand, quality of materials used in constructing, installing and completing the properties, disputes still frequently occur; typically the product is not the same as the design model.
The difference in the quality of actual and sample products, and the different expectations of each party has led to prolonged disputes. However, buyers are often at a disadvantage after paying for most of the assets. Therefore they often have to accept the final product even if they are not satisfied.
Regarding the risks of buying off-plan, Hoang Trung Hieu of the Faculty of Law, Vietnam Youth Academy, said that the progress on house building may have a guarantee mechanism from banks, but regulations on product quality assurance had not been adjusted on the Law of Real Estate Business.
Regulations on the acceptance of construction work were also difficult to adjust in terms of quality of actual assets, compared to signed contracts. And the risk was always on the buyer, causing disputes during the transfer process.
In fact, the contract of purchase and sale of off-plan property that violated the law will be declared invalid, and the parties will return to each other what they have received.
However, judgment enforcement will struggle in disputes when the regulations are not strong enough and have not yet resolved the consequences arising from the contract being breached.
Thus it requires a mechanism to ensure the enforceability of judgments for disputes related to apartment purchase and sale contracts in order to support the real estate market to develop.
Even though off-plan projects have been guaranteed by a bank, buyers must be granted letters of guarantee from banks when the projects are behind schedule.
Regarding this issue, economist Nguyen Tri Hieu said that the Law on Real Estate Business 2014 stipulated that that off-plan projects could only be sold if they had bank guarantees.
This regulation acts as a shield to protect buyers from investors drawing projects on vacant land and then raising capital without knowing the risks that may occur.
Despite the regulation, since 2015 there has been no official number showing how many projects have been guaranteed by banks and how many have been fulfilled, Hieu added.
Therefore, it is necessary to amend the law in the direction of tightening more regulations to force investors to properly perform their obligations.
Buyers need to have bilateral guarantee contracts, including bank guarantee certificates, to secure their interests.
In the draft to propose the amendment of the Law on Real Estate Business, the Ministry of Construction said that there would be amendments and updates on the law to cover these shortcomings.
