Law on Real Estate Business 2023 – Big Changes Coming for Foreign Investment in Vietnam Real Estate
In November 2023, during its 6th meeting session, the National Assembly of Vietnam passed the amended Law on Real Estate Business 2023 that will heavily impact foreign investment in the sector. This new law takes a dramatic step towards opening up real estate opportunities for foreign direct investment (“FDI”) companies compared to the current Law On Real Estate Business 2014. This law will come into effect on January 1, 2025.
In accordance with the current Law On Real Estate Business, any company with even 1 share or 1% foreign ownership shall be treated as “foreign owned enterprise”. Companies classified this way face very strict limitations on the scope of real estate business activities they can engage in. The narrow scope has made it extremely difficult for foreign investors to participate in Vietnam's attractive property market under the current law.
The Law On Real Estate Business 2023 introduces two flexible categories: (1) FDI companies subject to foreign investment procedures under Law on Investment 2020[1] (“Investment Procedures”) and (2) FDI companies exempt from the Investment Procedures. A FDI company that is subject to conditions and procedures applicable to foreign investors is a company whose:
- over 50% of its charter capital is held by a foreign investor(s); or,
- over 50% of its charter capital is held by a business organization(s) mentioned in Point (i) above; or
- over 50% of its charter capital is held by a foreign investor(s) and a business organization(s) mentioned in Point (i) above.
Accordingly, those FDI companies that are exempted from the Investment Procedures shall be eligible to register and engage in real estate businesses like domestic companies. Below, we would like to give a simple example of how to interpret Article 23.1 of the Vietnam Law on Investment 2020:
Following above example chart, the entity C will be considered as a FDI company that is exempted from the Investment Procedures. Pursuant to the Law on Real Estate Business 2023, the entity C shall be eligible to register and engage in real estate business like domestic companies.
Provided below is a summary of the scope of real estate business of FDI companies under Law On Real Estate Business 2014 and Law On Real Estate Business 2023.
| Law On Real Estate Business 2014 | Law on Real Estate Business 2023 | |
|---|---|---|---|
Real Estate Business | FDI companies/ Foreign Owned Enterprise | FDI companies subject to Investment Procedures (i.e.: entity A, B) | FDI companies not subject to Investment Procedures (i.e.: entity C) |
Investing in construction of house or construction works accompanied with land use rights for sale, lease or lease purchase through real estate projects | Yes | Yes | Yes |
Selling, leasing, and subleasing land use rights after having invested and constructed completely the required technical infrastructures | No | Yes | Yes |
Leasing house, construction works for sublease | Yes | Yes | Yes |
Purchasing entire or partial real estate project for continuing construction and trading | Yes | Yes | Yes |
Purchasing house, construction works for sale, lease, or lease-purchase | No | No | Yes |
Purchasing land use rights with completed infrastructures in a real estate project for sale or lease | No | No | Yes |
Leasing land use rights that have been equipped with required technical infrastructures in a real estate project for subleasing. | No | No | Yes |
The Amended Law On Real Estate Business 2023 comes enter into force on January 1, 2025. Related implementation regulations are also anticipated to be promulgated. Given this regulatory landscape, we recommend that relevant stakeholders proactively seek legal advice to evaluate how the revisions may impact real estate investments in Vietnam.
[1] Article 23.1 of the Vietnam Law on Investment 2020
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