Vietnam Real Estate: Developer Deposit Collection at Project Start Sparks Industry-Government Debate

In Vietnam, some industry associations and businesses are proposing amendments to the law that would allow real estate developers to collect a 5% deposit from homebuyers right at the project's commencement. Current regulations and the draft amendment stipulate that deposits can only be collected after the property meets sales conditions. The Vietnam Real Estate Association (VNREA) suggests allowing developers to collect deposits once a project is deemed ready for construction commencement. VNREA argues this would enable businesses to secure funds earlier and allow prospective buyers to confirm their purchases sooner. The Vietnam Banks Association echoed this sentiment, stating that homebuyers have a demand to secure contracts even before sales conditions are met, and that current regulations are impractical, limiting people's opportunities to buy homes. Real estate giant Vingroup has put forth two alternative proposals. The first is to permit the collection of deposits upon approval of the project's feasibility study report. The second proposal suggests removing the 5% cap on deposits while maintaining the current collection timing, arguing it aligns with the principles of contract formation under the Civil Code 2015. However, the Ministry of Construction has expressed concerns regarding these proposals. The ministry fears that allowing deposit collection before a project is fully ready for sale could lead to irregular fundraising methods, compromise the legal rights and interests of consumers, and reduce market transparency. The ministry emphasizes that the current regulations on deposits for "paper houses" were implemented to address issues such as "selling unripe fruit" and collecting excessive booking fees for unfinished projects. Local authorities have also voiced their concerns. The Khanh Hoa Department of Construction highlighted the lack of management mechanisms for collected deposits, posing a risk of fund misappropriation. They propose that these deposits be placed in a frozen bank account and released only upon signing the sales contract. Similarly, the Hai Phong Department of Construction is worried that the removal of the requirement for state agencies to issue a written response confirming a project's readiness for sale could embolden developers to bypass regulations, leaving consumers, who are in a weaker position, without adequate tools and information to verify project legality and encumbrances. The Ministry of Construction clarified that the detailed administrative procedures will be specified in the implementing decree, and the provincial construction departments are expected to continue issuing notices confirming a property's readiness for sale. Source: VnExpress