NOTES ON CAPITAL RAISING FORMS OF REAL ESTATE ENTERPRISE

The real estate investment fever never seems to cool down in the market. However, if investors or clients do not keep a cool head to have a cautious and sober view, the risk is inevitable. Despite the ongoing pandemic situation pushing the economy into extremely difficult circumstances, there are still many tempting offers along with “fiery” advice from some real estate businesses offering highly profitable investment packages, urging investors to quickly raise funds to invest in the dream of interest rates named Business Cooperation Contracts.

With the promising invitations from “skillful investors,” many are being drawn into the dream-like interest rate whirlpool. And it’s truly “dream-like” when disputes arise, and many are left astounded as the money vanishes into thin air.

Moreover, in reality, many real estate businesses have engaged with customers under various forms: reservation deposits, deposit contracts, promised transfer contracts, promised receipt of transfers, investment contribution contracts, purchase option contracts, and agreements on real estate transfer conditions, but have not completed or fulfilled the legal procedures as required.

The truth is, many investors have received substantial advance payments from these contracts, some cases even up to 80% of the total value. Consequently, in case of risks or disputes, it’s often the buyers who bear the burden.

Therefore, when risks and disputes arise, it is usually the home buyer who bears the responsibility.

In such a less than optimistic reality, now more than ever, customers and investors need to equip themselves with the necessary knowledge and be cautious in transactions, investment contributions, especially in real estate as it stands today.

From a legal perspective, discussing legal issues related to the above requires extensive discussion and research. Due to space limitations, in today’s article, we would like to address legal issues related to the provisions of the law regarding forms of real estate project capital raising.

In connection with the above content, according to the provisions of the 2014 Real Estate Business Law, specifically in Article 55 stipulating the Conditions for real estate to be formed into business:

“1. Having documents on land use rights, project dossiers, construction design drawings that have been approved by competent authorities, Construction permits for cases requiring construction permits, documents on acceptance of completed technical infrastructure construction corresponding to the project progress; in cases of future-formed apartment buildings, mixed-use buildings for residence, there must be an acceptance record for the completion of the foundation of that building.

2. Before selling, leasing, or purchasing future-formed houses, the investor must notify the provincial-level housing management authority in writing about the houses that meet the conditions for sale, lease, or purchase.

Within 15 days from the date of receiving the notice, the provincial-level housing management authority is responsible for responding in writing to the investor about the houses that meet the conditions for sale, lease, or purchase; if the conditions are not met, the reasons must be clearly stated.”

Thus, the Real Estate Business Law has clearly stipulated that only when the project completes the foundation, infrastructure, and obtains the approval for sale from the Department of Construction, can the investor sell, mobilize capital. This is to protect customers from unfortunate risks when some real estate companies operate in a speculative manner, pushing the risks onto customers.

In civil transactions, the signing of a “deposit contract” by the contracting party is quite common and recognized by law.

In civil transactions, the signing of a “deposit agreement” is quite common and recognized by law. Specifically, the Civil Code shows that the essence of the deposit transaction is for the purpose of benefiting the parties in concluding or performing a contract. However, for transactions in some specialized areas, it is necessary to consider the nature of the transaction from which appropriate legal principles can be determined and applied.

In this case, when the parties engage in transactions through the signing of a “reservation deposit agreement,” from the outset, it is established that the purpose of buying and selling and the ultimate goal that the parties aim for is ownership of the specific and detailed apartment or land lot as described in the contract.

Clearly, the subject of this transaction falls within the scope regulated by specialized laws. Specifically, Article 19(2) of Decree 99/2015/ND-CP guiding the 2014 Housing Law stipulates quite clearly that “cooperative parties, capital contributors …” are only allowed to divide profits (in cash or shares), and the investor is not allowed to raise funds to divide housing products or to prioritize registration, reservation, rights to purchase homes, or land use rights in the mobilized party’s project. Additionally, Article 8 of the Real Estate Business Law lists prohibited acts, including “real estate business without meeting conditions,” and “illegal capital mobilization.”

Therefore, when investing in any real estate product, to create value, you must create value on legal assets, you should not expect to create value on assets that are not qualified for business.

We must clearly acknowledge that engaging in a transaction with legal flaws also means we are simultaneously exposing ourselves to risks.

In reality, alongside cases of being deceived, there are also instances where buyers, despite understanding basic legal knowledge and being familiar with the project, still accept it because they believe in the rosy scenario painted by the developer.

The above are legal issues related to the provisions of the law regarding forms of capital mobilization related to real estate projects. If clients need specific advice and wish to use our services, please feel free to contact us using the information below.

>> CONDITIONS FOR ESTABLISHMENT OF FOREIGN BRANCH IN VIETNAM https://linconlaw.vn/conditions-for-establishment-of-foreign-branch-in-vietnam/

>> OPERATION REPORTING REGIME OF FOREIGN BRANCHES IN VIETNAM https://linconlaw.vn/operation-reporting-regime-of-foreign-branches-in-vietnam/