A favorable legal framework needed for real estate M&A

Mr. Chau added that the proposed revision to the Real Estate Business Law is likely to be passed quickly during the NA's 6th session. The content relating to project transfers or parts thereof is critical. However, existing legal restrictions governing real estate project transfers continue to offer a number of obstacles.

Lack of uniformity in regulations

According to Clause 3, Article 38 of the draft law outlining the "principle of transferring the entire or a part of real estate projects," the recipient party inherits the rights and obligations of the transferring investor and becomes the project's investor after the complete or partial transfer of a real estate project. There must be a clause permitting the receiving party to "inherit the financial obligations of the transferring investor" for land usage fees and project land leasing payments for transferred components of the project.

In Clause 3, Article 39 of the draft law, the notion of "inheriting the rights and obligations of the transferring investor" is not explicitly specified in circumstances where the "transferring investor has not completed all financial obligations related to the project land with the State." In such cases, the transferring and receiving parties might agree that the recipient party will complete the transferring party's remaining financial obligations.

Except for investment project revisions, real estate projects and commercial housing incur only one-time financial responsibilities for land use fees and State land leasing costs. As a result, the clause stating that "the recipient party fulfills all financial obligations" while the transferring party has not done so is consistent with the actual reality and does not result in a revenue loss for the State budget.

Furthermore, National Assembly Resolution 42/2017/QH14 on the trial settlement of credit institution bad debts only specifies "handling collateral assets as real estate projects" without requiring a "decision on land allocation or land lease by competent State authorities" or the transferring investor to have "completed financial obligations" regarding the transferred project or part of the project.

This resolution has enabled credit institutions to handle bad debts with collateral assets that are real estate projects, as well as facilitated the processing of bad debts related to transferred real estate assets, making the process smoother and posing no risks to credit institutions, transferring investors, and recipients of transferred projects or project parts. Furthermore, it allows investors to resurrect dormant projects, easing a substantial weight on the real estate market, which is now undergoing serious issues.

However, because National Assembly Resolution 42/2017/QH14 is only in force until December 31, 2023, its requirements must be incorporated into the new Real Estate Business Law.

Avoiding the need for a "red certificate" for transfers

In the legislative framework, the expression "without the mandatory requirement of having a Certificate of Land Use Right for the entire or part of the transferred project" is not properly defined. As a result, it is suggested that this sentence be reconsidered and removed.

If the transferring investor already has a Land Use Right Certificate, he or she has the "right" to transfer the full project or a portion of it. As a result, National Assembly Resolution 42/2017/QH14 only requires a "decision on land allocation or land lease by competent State authorities" for the project or part of the project being transferred, without requiring a "Certificate of Land Use Right" or "completion of financial obligations."

The Association proposes revising and supplementing Clause 3, Article 39 of the proposed Real Estate Business Law so that the transferring investor can carry out the project on land awarded or leased by competent State agencies. The transferring investor must have fulfilled all financial obligations related to the project to the State, including land use fees, land lease fees, taxes, and other fees related to land (if applicable) for the transferred project or project part, without mandating a Land Use Right Certificate for the entire or part of the transferred project.

If the transferring investor has not fulfilled all financial obligations related to the project land with the State for the transferred project or part of the project, the transferring and recipient parties can agree that the recipient party will fulfill all outstanding financial obligations. The beneficiary party has deposited monies at the State Treasury or acquired bank guarantees to assure the performance of the stipulated financial obligations associated to the project land. The transfer agreement should include these papers.