Vietnam: Experts voice concerns over handling of final 5% property payment

A proposal to change the handling of the final 5% payment for newly built properties in Vietnam is sparking debate among experts and real estate stakeholders. Under current law, buyers pay the remaining 5% when the ownership certificate (sổ hồng) is issued after property handover. However, a draft amendment to the Law on Real Estate Business suggests transferring this final 5% to a trust account, agreed upon by the developer and the buyer. The aim of this proposed change is to enhance buyer protection. Funds transferred to the trust account would be paid to the developer only after the buyer receives the ownership certificate, theoretically reducing the risk of buyers losing their funds if the developer faces financial difficulties. Despite the intended benefits, many experts and real estate investors have voiced concerns. A primary concern is the lack of clear regulations regarding who will receive the interest generated by funds held in the trust account. Under the current system, buyers can utilize the final 5% for their own investments or to cover additional costs during the construction and certification period. Shifting to a trust account might eliminate this opportunity. Ms. Le Thi Huyen Trang, General Director of JLL Vietnam, emphasized the need for clear rules on who opens the trust account, who bears the fees and interest, and how funds are handled in case of disputes. She also expressed concern that allowing buyers and developers to opt for alternative arrangements to the trust account could leave buyers vulnerable, given the often advantageous position of developers in real estate transactions. Conversely, Mr. Dinh Minh Tuan, Southern Region Director of Batdongsan.com.vn, believes the current system is sufficient, with buyers typically receiving their ownership certificates within six months of project completion. He argues that introducing new procedures would only add burdens to both sellers and buyers, as most buyers prioritize obtaining the certificate, making the final 5% payment less of a significant issue. An executive from a real estate investment company stated that for developers handling thousands of apartments, the final 5% represents a substantial amount. In the current high-interest rate environment with limited capital access, transferring this sum to a trust account could be beneficial, preventing capital stagnation due to delayed buyer payments and allowing developers more flexibility in managing cash flow for expenses and reinvestment. Some countries in the region, such as Singapore and China, have implemented strict management of pre-payments for future properties. Singapore requires developers to maintain separate project accounts where all customer payments and loans for the project are deposited, with funds usable only for taxes, state fees, and project construction costs. In some parts of China, buyer deposits are transferred to government-controlled accounts. Vietnam has a history of issues related to developer fund misuse and delayed issuance of ownership certificates. This proposed legal amendment is being discussed as a measure to address such challenges. However, the specific operational details and the clarification of rights and obligations for all parties involved will be crucial going forward. Source: VnExpress