How to beautify the image of off-the-plan housing

The affairs of Alibaba, Bavico Nha Trang, Gia Phu Land or other apartment disputes are reaching a complex level, resulting in unwanted “black streaks” on the image of the real estate market in general and the off-the-plan housing segment in particular. This is not an issue that local authorities can solve on their own because good policies are not enough without co-operation from all parties involved.

How to beautify the image of off-the-plan housing

Picking risks and opportunities

After choosing a reliable real estate developer, it is necessary that the buyer enquires about the law, evaluates and consults with lawyers to actively deal with the risks before purchasing a home. Buyers, even speculators, have the right to pursue interest and thus should be protected by the law. Transactions of off-the-plan real estate are considered to be highly risky, and that is exactly why buyers need to evaluate information carefully, accessing various sources rather than just trusting the developer. Issues that lead to conflicts are usually late handover (later than the date committed in the sales announcement) or nonconformity with the original guaranteed housing quality (e.g. not like the sample unit). Without thorough evaluation, buyers may face catastrophic results the developer who has received the money may complete the project late or transfers it midway.

As a matter of fact, off-the-plan real estate transactions are only allowed when the property meets certain conditions and legal documents are included (e.g. construction project documentation, construction drawing, construction licences, and certificates of land use right, among others). However, when the developer hands over an apartment which is not in accordance with the design or drawing or the apartment is too different from the model unit (which is considered “leading information” for the decision to make a purchase), conflicts may arise.

Thorough Evaluation and the rules of the game

Many developers have taken advantage of the law’s blemishes or apply it flexibly in negotiating this “on-paper” transaction. The proposed deals are usually in the form of capital contribution contracts, call options or business co-operation contracts, while the nature of these deals is buying and selling apartments. Buyers have the right to choose a legally completed project to “give money” or accept the purchase when documents are not completed, or the property is not clearly established yet, or even buy through a mere handwritten piece of paper as if it was just a civil transaction!

The law is clear: in order to be on sale, housing must meet the conditions of an off-the-plan real estate for transaction. The developer of a project must comply with regulations on organisations and individuals conducting real estate trading, according to the Law on Real Estate Business. Regarding payment, the law stipulates that the first payment (from the buyer) must not exceed 30 per cent of the agreement value. The next payment must be consistent with progress of the construction but cannot exceed 70 per cent of the value if the seller has not handed over the house or building to the customer (in case the seller or lessor is a foreign-invested enterprise, the total amount shall not exceed 50 per cent of the agreement value). The apartment is considered to be handed over when its ownership is legally transferred from the developer to the buyer.

When negotiating with the developer’s or the broker’s sales department, if buyers do not want to buy with the information provided, there will be someone else buying it. From a legal aspect, buyers need to consider carefully accepting the risks or negotiating to reach an acceptable agreement when finding that the developer has not yet performed his obligations.

Homebuyers need to be fully in picture about their rights and obligations

Clear Mortgage information

The law regulates that the developer can mortgage projects of off-the-plan real estate to obtain investment capital, but only when the bank has disbursed can the developer enter a purchase agreement and then proceed with granting certificates of ownership to the buyers. Therefore, it needs to be established whether the project is being mortgaged, and if so, at which bank, for how long, and whether disbursement is possible? If possible, the buyers should find out or request that the developer present documents proving that the off-the-plan house was not mortgaged or the document of disbursement in case it was. In addition, it is necessary to strengthen the connection between banks-developers-buyers in making information on mortgaged projects transparent so that the buyers can have more information to minimise risks during transaction.

Banks’ Guarantee Obligations

According to the Law on Real Estate Business, only commercial banks which are recognised by State Bank of Vietnam have the capacity to provide guarantee for transactions of off-the-land real estate. In addition, before accepting to guarantee for a developer, banks must be responsible for appraising the real estate projects. Based on these grounds, banks will make a decision whether to provide guarantee.

It is time all parties understood how the financial guarantee of commercial banks works and let everyone know that in principle a bank is responsible for guaranteed financial obligations when the developer does not hand over the apartments in accordance with the schedule committed to the buyers. The responsibility will arise when a buyer complains and the developer does not resolve the issue (does not pay). The compulsory sale of the property is an essential stage for the guaranteeing bank to implement the buyers’ rights. In fact, the bank will not easily disburse the guaranteed money if the project is in dispute or there is no firm basis to determine that the developer is insolvent. Besides, the developer may borrow from several banks for a project or the project may have been pledged or mortgaged by a previous buyer even though he has not paid the developer fully.

It is common for banks and real estate developers to have a close relationship, not to mention cross-ownership in their business systems. It is barely possible for buyers to know about this! However, the developers’ reputation of “not breaking promise” and their actual implementation of commitments will be perceived by buyers.

Developers’ roles and responsibilities

According to the Civil Code, Land Law, Law on Construction, Law on Protection of Consumer Rights, and specialised regulations on related fields of business, developers need to meet all conditions required for off-the-plan property to be put on transaction. If the property is not eligible yet, and the agreement is just for reservation and co-operation, the developers should make it clear to buyers and other related parties so that everyone has enough information to make the right decision.

The Law on Real Estate Business stipulates that within 50 days after handover, the developers must carry out procedures to provide a certificate of ownership for the buyers. Despite the fact that a few months’ delay or having no apartment to hand over (for objective reasons) rarely leads to the buyer bringing a case, the developers should frankly discuss with the buyers, rather than confronting them in disputes.

For further prospects, the developers should not confine themselves to complying with compulsory legal obligations. They should also co-ordinate with local authorities in the fight against fraud and illegal business activities. By declaring wrongdoings, they are protecting themselves.

Let us end this issue and draw a pretty picture for the off-the-plan housing segment with beautiful high-rise buildings providing retreats for thousands of residents. In order to achieve this goal, buyers must possess good understanding of the law and rules to negotiate with developers. Banks do not only grant credit packages, but also provide financial support to assist developers. Also, developers must always comply with the law and not only sell apartments to gain profit but to bring a happy and stable life for people.