A new decree more strictly regulates how developers of housing projectscan raise capital and is expected to shine a light on fraudulentpractices.
Undercapitalised and less-than-reputabledevelopers have long exploited the practice of selling unfishishedunits to buyers to cash out of and walk away from projects, leaving thehome buyer holding the bag.
The Law on Housing,passed in 2005, tried to end this practice by stipulating that realestate developers must complete construction on the foundations ofhousing projects before accepting deposits from buyers, explained DeputyMinister of Construction Nguyen Tran Nam .
Somedevelopers, however, have tried to get around even this restriction byselling interests in housing developments to secondary investors. Thesecompanies, in turn, have continued to practice of selling unfinishedproperties to potential home buyers.
The practiceshad caused losses to consumers and negatively affected the market, saidLe Hong Son, an official from the Ministry of Justice.
"Clearer and stricter regulations on the issue will be able to weedout businesses with a shortage of financial capacity," added Nam .
The new Government Decree No 71/2010/ND-CP thereforelimits the ability of real estate developers to sell interests inuncompleted projects to secondary investors and, in turn, restricts suchinvestors from selling housing units still under construction to homebuyers
The decree, by boosting transparency andoptions for real estate developers to raise capital for projects, mighteven assist some developers to make progess on some projects stagnantfor years, said Viglacera Land deputy director Nguyen Tri Dung.
For instance, the new decree also promotes the use ofreal estate trading floors to raise capital for projects already underconstruction.
Developers are limited in the decreeto raising no more than 20 percent of the total project budget fromsecondary investors – unless they are raising the capital via a tradingfloor. The decree waives the 20-per-cent limit but requires developersto report on these investments to their municipal constructiondepartments.
Century Real Estate Joint Stock Codeputy director Pham Thanh Hung said this provision would help promotereal estate transactions by capital contribution through trading floors.
"The decree has untied the hands of investors byrecognising the legality of capital contributions beyond a certainpercentage made through trading floors," Hung said.
It also brought investment contracts out in the open, when many had previously been illegal or underhand, he said.
"The decree allows investors to allocate up to 20 percent of the totalhousing units in a project based on capital contribution contracts,"said Nam . "In other words, they can't sell units to organisations orindividuals beyond trading floors."
The decree alsostipulates that developers cannot transfer land-use rights in new urbanareas if they do not build homes on the land.
"This requires investors to ensure project progress," Nam said.
"Real estate developers will have to jump into a game with new rules.The most beneficiaries would be people with real demands to buy ahouse," said Nguyen Van Long, director of the Hong Phu Estate TradingFloor.
Former Deputy Minister of Natural Resourcesand Environment Dang Hung Vo predicted the market would see somestagnancy in the short term due to the stricter regulations but would bemore transparent and stable in the long term.
It would take a couple of years for developers to get used to the new business conditions, Vo said.
"When that period is over, the market will be more stable, with higher property values," he said./.
Undercapitalised and less-than-reputabledevelopers have long exploited the practice of selling unfishishedunits to buyers to cash out of and walk away from projects, leaving thehome buyer holding the bag.
The Law on Housing,passed in 2005, tried to end this practice by stipulating that realestate developers must complete construction on the foundations ofhousing projects before accepting deposits from buyers, explained DeputyMinister of Construction Nguyen Tran Nam .
Somedevelopers, however, have tried to get around even this restriction byselling interests in housing developments to secondary investors. Thesecompanies, in turn, have continued to practice of selling unfinishedproperties to potential home buyers.
The practiceshad caused losses to consumers and negatively affected the market, saidLe Hong Son, an official from the Ministry of Justice.
"Clearer and stricter regulations on the issue will be able to weedout businesses with a shortage of financial capacity," added Nam .
The new Government Decree No 71/2010/ND-CP thereforelimits the ability of real estate developers to sell interests inuncompleted projects to secondary investors and, in turn, restricts suchinvestors from selling housing units still under construction to homebuyers
The decree, by boosting transparency andoptions for real estate developers to raise capital for projects, mighteven assist some developers to make progess on some projects stagnantfor years, said Viglacera Land deputy director Nguyen Tri Dung.
For instance, the new decree also promotes the use ofreal estate trading floors to raise capital for projects already underconstruction.
Developers are limited in the decreeto raising no more than 20 percent of the total project budget fromsecondary investors – unless they are raising the capital via a tradingfloor. The decree waives the 20-per-cent limit but requires developersto report on these investments to their municipal constructiondepartments.
Century Real Estate Joint Stock Codeputy director Pham Thanh Hung said this provision would help promotereal estate transactions by capital contribution through trading floors.
"The decree has untied the hands of investors byrecognising the legality of capital contributions beyond a certainpercentage made through trading floors," Hung said.
It also brought investment contracts out in the open, when many had previously been illegal or underhand, he said.
"The decree allows investors to allocate up to 20 percent of the totalhousing units in a project based on capital contribution contracts,"said Nam . "In other words, they can't sell units to organisations orindividuals beyond trading floors."
The decree alsostipulates that developers cannot transfer land-use rights in new urbanareas if they do not build homes on the land.
"This requires investors to ensure project progress," Nam said.
"Real estate developers will have to jump into a game with new rules.The most beneficiaries would be people with real demands to buy ahouse," said Nguyen Van Long, director of the Hong Phu Estate TradingFloor.
Former Deputy Minister of Natural Resourcesand Environment Dang Hung Vo predicted the market would see somestagnancy in the short term due to the stricter regulations but would bemore transparent and stable in the long term.
It would take a couple of years for developers to get used to the new business conditions, Vo said.
"When that period is over, the market will be more stable, with higher property values," he said./.
