With the economy growing and the demand for jobs in Vietnam gradually becoming stable, the tendency of foreigners to buy apartments in Vietnam also increases accordingly. However, after two years of overcoming the Covid-19 epidemic and the aftereffects of a series of bond violations by leading real estate companies, the State Bank of Vietnam issued Document No. 437/TTGSNH-TTr1 dated 25 April 2022 to strictly manage the credit granting activity for the real estate sector, as well as to transfer money collected from real estate abroad.
In this situation, besides having to fulfill various conditions for owning apartments under current law on housing, foreigners may also face numerous challenges in obtaining loans and transferring money from abroad for payment of apartment purchases in Vietnam, especially off-plan properties.
Restrictions on apartment ownership
According to the Law on Housing, foreign individuals investing in project-based housing construction in Vietnam or being permitted to enter Vietnam are eligible for ownership of separate houses and apartments in the housing construction investment projects provided that such apartments are not located within the area where foreign individuals are not allowed to own houses for the purpose of ensuring national defense and security.
Also, to prove a foreigner’s permission to own an apartment, the documents required under Law on Housing including: a valid passport with an entry verification stamp from the immigration authorities in Vietnam and not belonging to foreign representatives entitled to diplomatic privileges and immunities (for foreigners entering Vietnam); Certificates on investing and owning housing constructed in the project (for foreigners investing in project-based housing construction in Vietnam). However, Article 74 of Decree No. 99/2015/ND-CP stipulates that the only document needed to demonstrate the right of a foreigner to own an apartment is a valid passport with an entry verification stamp. Due to this inconsistency, in practice, the government authorities require foreigners who invest in project-based housing construction in Vietnam not only to provide a certificate on investing and having an apartment constructed in the project under the Law on Housing but also to provide a valid passport with an entry verification stamp, which is not required by the Law on Housing. This makes the process of purchasing apartments more complicated since foreigners are required to present more documentation.
Under Article 76 of Decree 99/2015/ND-CP, there are three ways for a foreign individual to own an apartment:
(i) Purchasing directly from the investor under a purchase and sale agreement;
(ii) Purchasing from foreign individuals or organizations that have been granted certificates; and
(iii) Receiving inheritance, donations from individuals, households, or organizations in a prescribed amount within the area where investment projects on housing construction are allowed to be owned by foreigners.
This regulation limits a foreigner’s right on selecting an apartment to buy, which is, foreigners are only permitted to buy off-plan apartments from the investor and not allowed to get reassignment of off-the-plan apartment sale and purchase agreements of other organizations and individuals.
The number of apartments to be owned and term of apartment ownership
The investor is only allowed to open the apartments for sale when the documents are adequate, consisting of: All documents approved by the competent authority includes documents on land use rights, project documents, design construction drawings, construction permits, documents on acceptance of the completion of the corresponding technical infrastructure construction according to the project schedule, and minutes of acceptance of the completed foundation of the building; and documents issued by the provincial housing authority to the investor that houses are eligible to be sold (Article 55 of the Law on Real Estate Trading).
The number of apartments that a foreigner allowed to own is also more limited than that of a Vietnamese. Specifically, a foreign individual is only allowed to own no more than 30% of the total number of apartments in an apartment building, and in the case that there exists plenty of apartment buildings for sale in an area with a population equivalent to a ward-level administrative unit, a foreign individual may only own no more than 30% of the apartments in each apartment building and no more than 30% of the total number of apartments in all these apartment buildings (Article 76 of Decree 99/2015/ND-CP).
According to these regulations, the number and type of projects that foreigners are allowed to own are not easily determined. Therefore, Article 76 of Decree 99/2015/ND-CP stipulates that the Department of Construction is responsible for fully updating information about the project and the number of apartments that foreigners are entitled to purchase on the Portal of the Department of Construction. However, in practice, not all projects in Vietnam that foreigners are permitted to own will be on the List of housing construction investment projects in the area where foreign individuals, organizations are allowed to own houses – which is publicly announced by the Portal of the Department of Construction. Foreigners must spend a lot of time getting information on the apartments that foreigners are allowed to possess from housing project investors. Nevertheless, some investors might not be aware of the exact number of apartments that are still allowed to be sold to foreigners. In case the purchase of the apartment is not allowed, this purchase and sale transaction will be invalid and result in losses to the foreigner.
Foreigners who own apartments for a set period of time as agreed in purchase, sale, lease purchase, donation agreements, or inheritance but no more than 50 years from the date of the certificate issuance may request to extend such period according to regulations if necessary (Article 161 of the Law on Housing). The period of apartment ownership with a fixed term will change to a stable and long-term one when a foreigner marries a Vietnamese citizen or an overseas Vietnamese.
Making payment for purchasing apartments
Foreigners make payment for the purchase or lease purchase of apartments through credit institutions operating in Vietnam (Article 162 of the Law on Housing). For apartment ownership in the form of investment in project-based housing construction in Vietnam, to transfer the money for housing construction investment into Vietnam, foreign individuals may open a direct investment capital account in foreign currency or Vietnamese dong at an authorized bank where the direct investment capital account in foreign currency has been opened to conduct lawful revenue and expenditure transactions in Vietnamese dong related to foreign direct investment activities in Vietnam (Article 5 of Circular 06/2019/TT-NHNN). This direct investment capital account will handle the direct capital contributions in foreign currency as well as foreign currency sales to authorized banks for conversion to Vietnamese Dong. In order to transfer money abroad after selling an apartment, a foreign individual is allowed to buy foreign currency at a credit institution licensed to do foreign exchange business and remit it abroad after 30 working days from the date of purchasing foreign currency (Article 9 Decree 70/2014/ND-CP).
For apartment ownership in the form of purchase, lease purchase, donation, or inheritance, foreign individuals are allowed to transfer foreign currency from abroad into foreign currency accounts that have been set up at authorized credit institutions in Vietnam (Article 6 of Circular No. 16/2014/TT-NHNN). Thenceforward, foreigners may sell foreign currency to authorized credit institutions to convert into Vietnamese Dong, and pay the purchase price to the investor. When purchasing apartments, foreigners are allowed to buy foreign currency at credit institutions licensed to provide foreign exchange services, and then transfer the purchased money abroad with the foreign currency account set up. However, prior to doing so, foreign individuals must present documents to prove the lawful origin of the amount of money remitted abroad in accordance with the regulations of the credit institution as well as documents certifying the fulfillment of tax obligations to Vietnam (Article 4, Article 2 of Decree 70/2014/ND-CP).
As a result, paying for the purchase and transferring money when selling a foreigner’s apartment is a complicated matter that involves a variety of processes, procedures, and documents. Moreover, it is fully up to discretion of each credit institution to determine whether the income from the sale of the apartment is lawful or not.
Taking out a loan for purchasing an apartment
A common practice nowadays is the demand of foreigners to take out a loan for purchasing an apartment. Although foreign individuals are listed as one of the borrowers under Article 2 of Circular 39/2016/TT-NHNN, the lending to foreigners depends entirely on the decisions of credit institutions. However, in fact, most credit institutions in Vietnam do not have internal professional guidelines on this lending activity, and if does, the requirements on procedures and documents to prove that foreigners are qualified would be difficult to meet. Prior to the current policy of tightening credit for real estate loans, foreigners had trouble obtaining loans to purchase apartments. While the current situation is tightening real estate loans, even Vietnamese people are having difficulty in taking out a loan to purchase apartments, let alone foreigners.
Due to the above conditions for owning off-the-plan apartments according to Vietnamese law and the current policy of tightening loans to buy real estate, foreigners buying apartments in Vietnam may encounter several challenges with documents, procedures, and finances.
Note: This article is provided for reference purposes only and does not constitute legal advice. Depending on each specific matter from time to time, the content presented above may no longer be appropriate. For detailed advice, please contact LMP Lawyers.