Property start-ups soar as capital deadline looms

March 23, 2015 | 09:39
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There has been a wave of new property business start-ups since the beginning of the year, as the minimum legal capital requirement of VND6 billion (US$284,000) is still effective.

Terraced houses in the Xuan Phuong Urban Area in Ha Noi's Hoai Duc Districts. VNA/VNS Photo Tuan Anh

From July 1, that level will be raised to VND20 billion ($945,000).

According to the General Statistics Office, the number of property firms established in the first two months of this year rose by 89 per cent over the same period last year, or 223 firms per day.

Deputy Chairman of the Viet Nam Federation of Civil Engineering Association Pham Si Liem said this somehow reflected optimism about the recovery of the property market, and firms saw opportunities to invest in it.

However, most of these start-ups were small with modest registered capital.

Deputy President of HCM City Real Estate Association Nguyen Van Duc said firms must be very cautious in doing business as lower average registered capital meant that several small and medium-sized firms were at higher risk when upheavals occurred.

"If firms want to exist and develop in a harsh property market, they must be professional and stand on solid resources," Duc said.

Another reason for the wave of property business start-ups was the amended Law on Real Estate Business, which required a minimum legal capital of VND20 billion ($945,000) from July 1, up from the current VND6 billion ($284,000).

As a result, there was a rush to establish firms before the end of June.

Under the draft decree prepared by the construction ministry on the basis of the law, a minimum legal capital requirement of VND50 billion ($2.64 million) might be applied on those investing in property projects that were awaiting approval of State investment agencies. Others would be required to have a minimum legal capital of VND20 billion.

The construction ministry said raising legal capital limits aimed to prevent the establishment of firms en masse, which occurred during the past few years, leading to unfinished projects and losses to buyers.

This drew mixed opinions from experts. At a conference last week held by the Viet Nam Chamber of Commerce and Industry, most experts said the VND50-billion minimum legal capital rule was unreasonable and inconsistent with the Law on Real Estate Business.

Some said the regulation was not tight enough to deal with the mass establishment of property firms, while others said raising legal capital limits would narrow down doors for small businesses.

According to Phan Hai Anh from Vingroup, different levels of minimum legal capitals might cause confusion. She added as the Law on Land regulated that an investor must have equity capital equal to 15 per cent or 20 per cent of the total investment of the property project, there was no need to have two different levels of minimum legal capital. The VND20-billion minimum legal capital rule sounded reasonable, Anh said.

Director of Basico Law Firm Truong Thanh Duc proposed to put the draft regulation for reconsideration, as it might be inconsistent with the established law, adding that only one minimum legal capital level should be applied.

Chairman of the Viet Nam International Arbitration Centre Tran Huu Huynh said he was worried about the retroactive effect of the law, adding that firms established before the amended law came into effect should be allowed to keep a minimum legal capital of VND6 billion.

Huynh said the draft regulation about adjusting the minimum legal capital level following macro-economic improvement was not reasonable, as it might narrow down opportunities for small businesses to join the market.


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