Lack of legal clarity causes difficulties in real estate

According to Nguyen Tien Hiep, chairman of the board at Vietnam Global Holdings, a key reason for quiet transactions in the market this year has been caused by the fact that investors have lost confidence in real estate products in trading centres, with the majority of projects lacking legal transparency.

Lack of legal clarity causes difficulties in real estate, illustration photo/ Source: freepik.com

“I see that there is a lot of potential money floating about, but gaining the belief of users at this time is really difficult. Transparency in investment of real estate is something that is missing in the market right now, and some investors are using capital for the wrong purposes,” said Hiep.

In the Vietnamese real estate market, many projects have been forced into suspension due to legal procedural issues that could involve planning approval, construction permits, certificates for land use rights, fire protection, documents on eligibility for capital mobilisation, and bank guarantee notices.

Hiep added that some developers are using cash sources from one project to invest into other projects, or even using deposits for other financial investments, confusing matters further.

According to Hoang Van Cuong, member of the National Assembly Finance and Budget Committee, the responsibilities of real estate trading centres must be clearly defined in ensuring the legality of their activities.

“If information of price and legality of the targeted projects is wrong, trading centres must be responsible and pay back customers’ deposits,” Cuong said.

Real estate trading centres in Vietnam sell products to buyers on behalf of developers and earn profits through transaction fees. Common cuts are 2 per cent of the asset value and brokerage fees of up to 4-5 per cent. In some cases, the brokerage fee is as high as 8 per cent for assets that are difficult to sell. These fees are added to the price and must be borne by buyers.

Such trading centres often aim for short-term benefits, which often leads to unprofessional operations, deceiving customers with false advertisements about projects, Cuong explained. The sanctions imposed on trading centres currently are deemed not strict enough to deter such occurrences.

More than 1,000 real estate businesses being dissolved or declaring bankruptcy in just the first 10 months of the year has led to half of real estate trading centres in the country ceasing operations altogether, according to the General Statistics Office.

Ho Chi Minh City Department of Construction on November 1 announced a list of 61 real estate trading centres operating in the city and a list of 17 real estate trading centres that have stopped operating.

Those that have now shut were typically established after 2017, and including Goland Trading Centre in District 1, Wonderland and Vieland Trading Centre in District 3, and Milestone Land Trading Centre in Thu Duc.

Many businesses have had to narrow the scale of investment in production and business, streamline their labour apparatus, postpone investment activities and construction, or stop implementing new projects entirely.

It is normal that every developer will have their own trading centre to deal with customers. They are usually assigned to sell up to 80 per cent of the developers’ products. This condition is also considered unfair with third independent brokers, Cuong said.

In order to halt instability for the whole market, at the sixth session of the National Assembly at the end of October, many delegates proposed mandatory regulations that every transaction should not be made via a trading centre.

Chairman of the Economic Committee of the National Assembly Vu Hong Thanh said that the practice of summarising the implementation of the 2014 Real Estate Business Law shows that current real estate trading centres do not ensure transparency and legality of the transaction because they are a party that benefits from every deal done.

“Therefore, forcing transactions through real estate trading centres is inconsistent with the current legal system. This regulation also hinders the freedom to do business, potential to take advantage of legal regulations to monopolise and manipulate the market,” Thanh said.

Clarity at the heart of plan on owner figures The first-ever plan to determine the number of houses and apartments of every owner is expected to ensure that Vietnam’s real estate market is more transparent.