From 1 January 2021, a large number of new legal regulations related to various fields came into effect in Vietnam. These regulations brought major changes to sectors such as investment, construction, residential housing, real estate business.

According to the real estate market report of the Ministry of Construction (“MOC”), the amount of real estate inventory in the third quarter of 2021 is estimated at 15,067 units, demonstrating that the absorption capacity of the real estate market has decreased, compared to the previous quarter.

By the end of September 2021, the total registered capital for new, adjusted, and contributed capital to acquire shares or capital contributions of foreign investors reached US$22.15 billion, which was an increase of 4.4% over the same period in 2020.

Statistics of the MOC also show that foreign investment in the real estate market increased gradually from the end of March to September 2021 from US$0.6 billion to US$1.78 billion. Accordingly, accumulated registered capital in the real estate sector tends to increase gradually by quarter. Another positive signal is that the number of newly established real estate businesses in the first nine months of 2021 also increased by 11.5% compared to the same period in 2020. Vietnam is still well-positioned to attract FDI into the real estate business.

This Guide focuses on the property development procedures for a foreign-invested enterprise (“FIE”) / foreign-invested economic organization (“FIEO”) / foreign-owned company (“FOC”) as defined under the Investment Law to develop real estate Projects (the “Project”).

General rules for foreign investors

Market access conditions for foreign investors in the real estate business

Real estate business is not a business sector that Vietnam committed to allow foreign investors to freely and unconditionally access under the WTO Commitments. Therefore, market access conditions applicable to foreign investors in real estate business will be provided by the specialized local laws^[1], such as the Investment Law, the Real Estate Business Law, the 2013 Law on Land (the “Land Law”), the Housing Law, and other relevant regulations. Those laws allow FIEs / FOCs to invest in real estate business without a foreign capital restriction.

Rules for conditional sectors

Real estate business is one of the sectors in which business investment is conditional for all investors with no distinctions between foreign and domestic source^[2]. Any organization or individual wishing to conduct real estate trading must set up an enterprise or cooperative^[3]. As such, a foreign investor must either establish an economic entity (a FOC) which requires compliance with market access conditions under Article 22 of the Investment Law^[4], or contribute capital or purchase shares / capital contribution portions, i.e., to acquire equity, in a duly incorporated and operating Vietnam-based enterprise under Article 25 of the Investment Law.

Treatment of an FIEO (FIE / FOC) having over 50% foreign-owned capital

FIEOs are those having a foreign investor as a member or shareholder^[5]. The following FIEOs shall be subject to investment conditions and procedures applicable to a foreign investor^[6]:

• having foreign investor(s) holding more than 50% of its charter capital (or having a majority of their general partners being foreign individuals or partnership companies);
• having economic entity(ies) as described in item (a) above holding more than 50% of its charter capital; or
• having foreign investor(s) and economic entity(ies) as described in item (a) holding more than 50% of its charter capital.

Those FIEOs which do not fall into the above cases will be able to conduct investment activities as a Vietnamese local company, i.e., being equally treated as a domestic investor.

Treatment of FOCs with foreign investor status under the Real Estate Business Law and the Housing Law

The general rules and restrictions for property ownership by foreigners (individuals and corporate entities) restrict the activities of foreign investors within the sector as follows (the “Ownership Restrictions”):

• FIEs / FOCs investing in the construction of houses / apartments for sale can own, sell and lease the houses / apartments to eligible purchasers in Vietnam. In other words, such FIEs / FOCs act also as the developer of its real estate Projects[7];
• FOCs investing in the construction of houses / apartments for lease in Vietnam can own their buildings. The duration of the ownership, however, is the duration stated in their Investment Registration Certificate (“IRC”) and Certificate of Land Use Right and Ownership of House and Other Assets (“LURC”) and has a maximum of 50 years which can be extended in certain circumstances (but not to exceed 70 years in any cases)[8];
• FOCs (not conducting real estate business) can only own houses or apartments in real estate Projects for their staff to reside in[9]. However, the total number of houses or apartments owned by such an FOC within an apartment building or a ward is subject to statutory limitations. The duration of ownership must not exceed the duration of the IRC of such FOC[10];
• Foreign individuals who are allowed to enter Vietnam can own houses or apartments in real estate Projects for a period of up to 50 years (renewable), i.e., on a leasehold basis only[11];
• Generally, foreign individuals and entities who are entitled to own houses in Vietnam enjoy the right to resell, lease, mortgage, contribute as equity in companies, exchange, and other legitimate rights conferred upon their owned houses/apartments; and
• Unlike a local company or a Vietnamese citizen, if an FOC is not the developer of a real estate Project (as mentioned earlier), it is not permitted by the local laws, among others, to[12]:
• purchase buildings for sale, for lease, or for lease purchase; and
• conduct real estate trading activities in the case of land transferred or leased from organizations, households, or individuals, i.e., purchase land or properties from others for trading or resell.

The above Ownership Restrictions do not apply to domestic individuals and organizations which are able to invest in all forms of land that are allowed under the laws.

Investment forms for foreign investors

There are commonly two forms of investment that foreign investors might consider when investing in real estate in Vietnam, including:

• Establishing a real estate business enterprise with foreign-owned capital; or
• Contributing capital or purchasing shares or capital contribution portions in local real estate enterprises, i.e., to acquire equity of a local entity.

Specifically, for the above-mentioned Projects, once the investment policy and the investor of the Project are approved or the selection of the investor is completed, the provincial PC shall consider and decide on the permissions for the Project to be implemented first, then the construction procedures, labor, land, and other relevant procedures to follow. These procedures are under the competence of the provincial PC or the Management Boards of industrial zones, departments prescribed in relevant laws. In this case, the investor must commit to the progress of completing the procedures and take full responsibility if it does not comply with the conditions and regulations as prescribed under applicable laws.

Several conditions for enterprises to conduct real estate business

Organizations and individuals conducting real estate business must satisfy the conditions as specified in Article 4 of Decree No. 02/2022/ND-CP. In addition, depending on the land size, a property developer shall be required to obtain at least 15% or 20% of the total investment capital. It is however important to note that the calculation of such investment capital is based on the most recently audited financial statements or independent audit report of the project company / developer made in the year or the year preceding. In the case of a newly established company, the investment capital is determined according to the actual charter capital contributed by the members / shareholders of such project company / developer.

Our next edition of RE Trends will feature the 2^nd part of this Guide which will detail the general procedures for developing a real estate project including preparing for investment, implementation of real estate projects and putting the project into operation.

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[1]           Article 17.4(b), Decree No. 31/2021/ND-CP dated 26 March 2021 on detailing and guiding the implementation of several articles of the Investment Law.

[2]           Article 7 and Appendix 4, the Investment Law.

[3]           Article 10, the Real Estate Business Law.

[4]           i.e., “satisfying market access conditions applicable to foreign investors, having investment plan, implementing procedures for IRC obtainment”.

[5]           Article 3.22, the Investment Law.

[6]           Article 23.1, the Investment Law.

[7]           Article 159.2(a), the Housing Law.

[8]           Article 44.2, the Investment Law.

[9]         Article 162.2(b), the Housing Law.

[10]         Article 161.2(d), the Housing Law

[11]         Article 161.2(c), the Housing Law.

[12]         Article 11, the Real Estate Business Law.